E M E C O 2 0 0 9 A N N U A L R E P O R T
Annual
Report
2009
RENTAL | SALES | PARTS | ASSET MANAGEMENT
I
INSIDE FRONT COVER
E M E C O 2 0 0 9 A N N U A L R E P O R T
I I
E M E C O H O L D I N G S L I M I T E D A C N : 1 1 2 1 8 8 8 1 5
EMECO 2009 ANNUAL REPORT
Contents
Chairman’s Report
Managing Director’s Report
Review of Operations
The Emeco Board
Directors’ Report
Directors
Company Secretary
Directors’ Meetings
Corporate Governance Statement
Nature of operations and principal activities
Operating and financial review
Dividends paid or to be paid
Significant changes in state of affairs
Significant events after balance date
Likely developments and expected results
Directors interest in shares of the Company
Remuneration report (audited)
Indemnification and insurance of Directors, Officers and Auditors
Non-audit services
Rounding
Lead Auditor’s Independence Declaration
Income Statements
Balance Sheets
Statements of Recognised Income and Expense
Statements of Cash Flows
Notes to the Financial Statements
Directors’ Declaration
Independent Auditors’ Report
Shareholder Information
Company Directory
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17
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28
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29
34
35
35
35
35
35
35
36
48
48
48
49
50
51
52
53
54-110
111
112
114
116
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E M E C O 2 0 0 9 A N N U A L R E P O R T
Chairman’s Report
Dear Shareholder
On behalf of the Directors I am pleased to present Emeco Holdings Ltd’s Annual
Report to shareholders for the 2008/2009 financial year.
Performance for the year
The 2008/2009 financial year (FY09) was one of the most turbulent of recent decades.
As the global financial system moved towards near collapse in late 2008, global
economic activity declined with a suddenness that was impossible to predict. Emeco
began to feel the full force of the global financial crisis in December 2008 and into the
first few months of 2009, when mining and construction activity dropped substantially.
Emeco’s revenues were severely impacted during this phase of the crisis and are
reflected in our full year results. Net profit after tax (NPAT) before significant items
was $57.7 million for the year.
However, despite experiencing some of the toughest trading conditions in its history,
Emeco was well positioned to ride out the storm having secured debt funding early
in the year and had already initiated measures to more prudently manage capital
expenditure. Furthermore, as the global crisis unfolded, we moved quickly to
implement further initiatives across the Emeco Group which underpinned continued
substantial free cash flow generation and profitability, even during the worst of
the crisis. These initiatives have prepared Emeco to withstand any further global
economic shocks and position the Group to perform strongly when the world emerges
from the economic crisis.
Although Emeco experienced a significant decline in activity in the first few months
of 2009, this unprecedented volatility was experienced across the mining and
construction industry globally, indicating the activity decline was not specific to
Emeco. Our business model has proved its durability during this difficult period and
the advantages of Emeco’s value proposition to our customers began to re-emerge in
the final months of 2009 as the volatility in our markets eased.
While Emeco’s financial position remains strong, the challenge to enhance the
return on invested capital remains. As part of this primary objective, the Company
has commenced downsizing its European business. Furthermore, ongoing earnings
volatility in the existing United States of America (USA) business has necessitated a
review of market opportunities outside the Appalachian coal region. An oversupply
of small civil-construction equipment in North America and Europe has led to a
continuing downsizing of Emeco’s position in this sized equipment. These factors have
resulted in one-off impairment and restructuring charges of $44.5 million in FY09.
Although a disappointing result for the current year, the action taken is prudent in the
current circumstances.
2
“… New initiatives have
best prepared Emeco to
withstand any further
global economic shocks …”
E M E C O 2 0 0 9 A N N U A L R E P O R T
Strong performance
Our business model has proved durable during this difficult
period and the benefits of Emeco’s support for our customers
began to re-emerge in the final months of 2009.
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E M E C O 2 0 0 9 A N N U A L R E P O R T
Funding
The successful refinancing of Emeco’s senior debt facilities early in the financial
year provided us with a secure balance sheet position which enabled the Group to
manage through the economic crisis in the second half of the financial year. Our focus
on cash flow maximisation and a disciplined approach to capital expenditure further
strengthened our balance sheet position.
Dividend
The dividend policy of the board is to distribute to shareholders approximately 35
percent to 45 percent of annual NPAT and to frank dividends to the fullest extent
possible.
The Board has determined the final dividend for 2009 with reference to the Group’s
Operating NPAT of $57.7 million which excludes the significant one-off impairment
and restructuring charges incurred in this financial year given they are largely
non-cash in nature. Furthermore, the Board has considered the extent of available
retained profits and franking credits and the robust free cash flow and balance sheet
in reaching its decision on dividends. Accordingly, the Directors have declared a final
dividend of 2.0 cents per share. This takes the fully franked dividend for the financial
year 2008/2009 to 4.0 cents. The final dividend will be 100 percent franked.
Our people
Our skilled and dedicated employees remain a key to our success. I want to take this
opportunity to thank everyone for their significant contribution to securing Emeco’s
future as a world class provider of earthmoving equipment solutions.
We have not wavered in our commitment to ensuring the safety of our employees,
contractors and visitors. During the year, we devoted considerable time and attention
to improving the safety performance of all our operations around the world. Whilst
this is an area that requires constant vigilance and continuous improvement, I believe
Emeco made significant progress in FY09 toward ensuring its safety management
practices are uniformly world class. Our ultimate safety objective remains ‘zero harm’
and this objective continues to guide us in how we manage and think about safety in
the workplace.
Board changes
In June this year Laurie Freedman announced his intention to step down as Emeco’s
CEO and Managing Director. Laurie will continue to lead the Company while the
current search for his successor continues and will step down when his successor
is appointed. Laurie’s contribution to Emeco during his ten year tenure as CEO has
“… We believe we have
been incalculable. Under his guidance and leadership, Emeco has grown from a small
positioned Emeco solidly to
privately owned Western Australian business into one of the largest earthmoving
equipment rental companies in the world with operations around the globe.
Laurie’s vision and his commitment to the Emeco model have been fundamental to
take advantage of a return to
economic growth.”
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E M E C O 2 0 0 9 A N N U A L R E P O R T
E M E C O 2 0 0 9 A N N U A L R E P O R T
Emeco’s growth and success. On behalf of my fellow Directors I thank Laurie for his
contribution; he will leave behind a Board and executive team who are ready to meet
the challenges ahead.
In addition, Greg Minton and Paul McCullagh both resigned as Directors of the
Company during the year. Greg and Paul have both made significant contributions
to the development of the Emeco Group having both been an integral part of the
Company’s private equity buy-out and subsequent public listing.
During the year, the Directors announced the appointment of Robert Bishop and John
Cahill as Independent Non-Executive Directors. Both have worked at senior executive
levels within the energy and resources sectors. We are fortunate to have attracted
Directors of their calibre and Emeco is already benefiting from their experience as the
Company embarks upon the next phase of its development.
The future
Whilst the global outlook remains somewhat uncertain, we believe we have positioned
Emeco solidly to take advantage of a return to economic growth. In the year ahead,
we will maintain our focus on improving the utilisation of our global equipment fleet
and continue to prudently manage our capital base, with the overriding objective of
providing superior returns to our shareholders.
We remain confident that Emeco can deliver steady and sustainable growth for
shareholders over the coming years.
Alec Brennan
Chairman
Providing superior returns to our shareholders
Over the medium term we are expecting a return to more normal
economic conditions that will drive our earnings higher. We have a
lot of capacity to leverage earnings over the next 18 months from our
existing installed asset base.
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E M E C O 2 0 0 9 A N N U A L R E P O R T
Managing Director’s Report
OVERVIEW
Emeco experienced strong activity in the second half of financial year 2007/2008
(FY08) which continued into the new financial year resulting in a record half year
profit for the first half of financial year 2008/2009 (FY09). The increasing contribution
from Emeco’s international businesses, in particular Indonesia and Canada, was a
particularly pleasing feature of our strong first half result.
Concurrently with the robust operating conditions in the first half of FY09, the
Company commenced implementing a range of initiatives to manage capital in an
improved manner with the overall objective of enhancing return on capital. The
Company also achieved balance sheet security by completing a $595 million debt
refinancing in August 2008. The combination of strong earnings, increased focus on
capital management, and balance sheet strength positioned Emeco with significant
flexibility moving into 2009.
After such strong utilisation in all our regions, the suddenness and magnitude with
which the global financial crisis unfolded in December 2008 was unexpected, giving us
little time to anticipate and adjust to the challenges that lay ahead in the remainder of
the year.
Many of our businesses experienced a decline in utilisation in the second half of FY09,
resulting in lower earnings; however, our ability to move quickly to adjust to the new
adverse conditions was greatly enhanced by the positioning of the business in the
preceding period. Emeco management further contracted its capital expenditure
program while focusing on strategies to redeploy equipment across Emeco’s markets
which underpinned strong free cash flow throughout this challenging period.
Across the organisation the focus was on recycling underperforming capital and
deploying idle equipment in alternative configurations and/or locations. An internal
focus on efficiency and improvements in core processes contributed to working
capital reductions. At all levels throughout the business we identified ways to do
things smarter, more quickly or at a reduced cost. Externally, the flexible long-term
approach we adopt with our customers has afforded us the opportunity to realign our
products and services with their changing needs and retain valuable partnerships
which has positioned us well for the future.
While some companies fared poorly during FY09, the Group’s balance sheet remained
strong throughout the year enabling us to weather the storm. We have significant
“ … The Group’s balance
sheet remained strong
headroom under our debt facility and remain comfortably compliant with all covenants.
throughout the year …”
Depressed trading conditions in Europe and North America, particularly in the
civil construction sector resulted in largely non-cash one-off impairment and
restructuring charges of $44.5 million in FY09. These charges relate to the
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E M E C O 2 0 0 9 A N N U A L R E P O R T
Our business model
We are now seeing emerging signs of a return to a more stable
environment where we expect resumption of volume growth in our
key commodity exposures. In this context, the virtues of the business
model are expected to become evident once again.
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E M E C O 2 0 0 9 A N N U A L R E P O R T
downsizing of the European operations, impairment of goodwill and tax assets
in the USA business due to the uncertain operating outlook, and write-down of
specific small-sized civil construction equipment in North America. Impairment and
restructuring charges after excluding goodwill impairment will have the effect of
reducing net tangible assets per share by 6 percent from $0.79 to $0.74 at 30 June
2009.
Against the backdrop of lower utilisation, our continued cash flow generation during
the last six months of FY09 is testament to the sustainability of the Emeco business
model through the economic cycle. Emeco has come through this period leaner and
more focused and is securely placed to exploit the opportunities that will arise in the
future.
A full overview of our regional operations follows:
In Australia, Emeco’s Rental business enjoyed an average utilisation of 87 percent in
the first half of FY09; however utilisation declined to 68 percent in the second half.
A high level of fleet engagement continued within our NSW business throughout
the second half due to its primary exposure to thermal coal and gold. Significant
production cut-backs in Queensland’s coking coal sector, and to a lesser extent
general volatility in mining activity across Western Australia, were the primary drivers
of lower utilisation in the second half of FY09. The last six months of FY09 marked
what could be characterised as the most volatile period in the Australian mining
industry in many decades, however the recent stabilisation in activity and Emeco’s
geographic market and customer diversification is expected to underpin a return to
stronger earnings going forward.
Value creation
Emeco’s business strategy is right, the signs of a
turnaround are encouraging, and the business is very
well positioned to see an improvement in earnings rate
as we progress through FY10.
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E M E C O 2 0 0 9 A N N U A L R E P O R T
The Australian Sales business felt the tide turn around the middle of the financial
year. The business experienced strong revenue and stock turns in the first half of
FY09, but the lower sales volumes in the second half was due to weak demand as
businesses deferred capital expenditure decisions or had limited access to credit. The
Government’s bonus tax incentive for new asset purchases also diverted buyers from
used to new equipment, further impacting our used equipment sales revenue.
In Indonesia we continued to enjoy strong demand for equipment throughout FY09
and experienced robust utilisation on the back of steady thermal coal production and
export volumes. The business continues to develop scale to match the infrastructure
in place and this has aided further market penetration over the past 12 months.
Continued demand for our product offering is expected to drive earnings over the
medium term, whilst the opportunity also exists to expand into new geographical
markets from our Indonesian base.
In Canada, the strategy to reconfigure the fleet from small civil to large mining
equipment delivered substantial rewards in the first half of FY09, with construction
activity and mine development in the oil sands region underpinning demand for our
equipment. However, the collapse in gas and oil prices and the broader economic
decline significantly impacted utilisation of our mining fleet. The civil construction
market in Alberta also contracted sharply impacting utilisation of our small civil
equipment. Our continuing efforts to penetrate coal, gold and other commodities in
Western and Northern Canada, together with an improving outlook for the oil sands
sector, is expected to reward our strategy of growing our mining fleet capability, whilst
continuing to reduce small civil equipment within our Canadian business.
Emeco’s small USA operations were also adversely impacted in the second half
due to the rental business’s concentrated exposure to the Appalachian coal region
where coal price declines have impacted volumes due to the high cost nature of this
mining region. We are currently studying alternative mining regions within the USA
market to assess whether geographic and commodity diversification of the business
can reduce earnings volatility and deliver improved returns over the medium term.
However, it is recognised that the USA rental business is adversely impacting Emeco’s
return on capital and if the outcome of this due diligence does not support expansion
then Emeco’s position in the USA will be reconsidered and restructured in the most
appropriate manner. Given this uncertain outlook, an impairment of goodwill and
deferred tax assets totalling $9.9 million has been recognised.
“… Our continued cash fl ow
generation is testament
to the sustainability of the
Due to the ongoing underperformance of the European business, management
commenced a strategic review in late FY09. As a result of this review we have
commenced a major downsizing and restructuring of the business. We will continue
our presence in the region as it is expected that Europe will remain a procurement
hub for the Group and will enable us to monitor potential longer term opportunities,
however the level of invested capital and overheads will be significantly reduced.
Impairment and restructuring charges of $26.8 million have been recognised during
business model …”
the year as a result.
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E M E C O 2 0 0 9 A N N U A L R E P O R T
SUMMARY OF FINANCIAL PERFORMANCE
A$M
FY08 Operating
FY09 Operating
(pre significant
items)
FY09 Statutory
(post significant
items)
YOY %Operating
Revenue
EBITDA
EBIT
NPATA
NPAT
617.9
213.5
119.2
68.6
67.5
Operating results
528.2
210.9
105.9
58.1
57.7
528.2
185.3
67.7
26.2
13.3
(14.5)
(1.2)
(11.2)
(15.3)
(14.5)
The Group’s FY09 revenue of $528.2 million and operating earnings before interest
and tax (EBIT) of $105.9 million was down 14.5 percent and 11.2 percent respectively
as compared to FY08. The lower earnings were attributable to a rapid decline in
utilisation and sales volumes in the second half of FY09 due to broad based volatility in
mining and construction activity in most geographies.
The most significant decline in activity was experienced in Queensland (coking coal),
Canada (oil sands), Western Australia (iron ore) and Europe. Sales and Parts volumes
were also down significantly due to constrained purchasing by customers in the
second half. However, strong utilisation levels continued throughout the year in New
South Wales and Indonesia due to robust thermal coal and gold markets.
Profit on sale of rental assets (POSA) in FY09 was $3.9 million (FY08: $9.5 million) on
total asset disposals of $21.3 million (FY08: $43.8 million).
As a result of the above factors NPAT before significant items declined 14.7 percent
from $67.5 million to $57.7 million in FY09.
Significant items
In addition to the operating NPAT of $57.7 million, Emeco incurred significant one-off
impairment and restructuring charges totalling $44.5 million, resulting in a statutory
NPAT of $13.3 million for the 12 months ended 30 June 2009. These impairment and
restructuring charges comprise:
•
An impairment and restructuring charge of $26.8 million as a consequence of the
downsizing strategy for the European business, including impairment of goodwill,
tax asset write down, impairment of sales inventory, provision for doubtful debts
and restructuring costs.
•
An impairment charge in respect of USA goodwill and tax assets totalling $9.9
million arising from the volatile and uncertain earnings outlook for this business.
•
An impairment charge of $7.7 million on an after-tax basis ($9.3 million pre-tax)
in respect of the carrying value of specific small sized rental equipment and
inventory utilised in the construction sector in the USA and Canadian businesses.
A significant decline in construction sector activity in North America, coupled
with equipment oversupply, has impacted market valuations of some small civil-
construction equipment giving rise to the impairment.
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E M E C O 2 0 0 9 A N N U A L R E P O R T
E M E C O 2 0 0 9 A N N U A L R E P O R T
The impairment and restructuring charges comprise the following items by region:
Rental
& Sales
Inventory
(1)
Provision
for
Doubtful
debts (2)
Restructuring
provision (3)
Goodwill
(4)
Tax
Assets
(5)
Tax
effect (6)
TOTAL
$M
(NPAT)
(10.2)
(3.5)
(5.8)
(4.2)
(3.2) (*)
(6.9)
(5.6)
(2.7)
(4.3)
(19.5)
(4.2)
(3.2)
(12.5)
(7.0)
57.7
(26.8)
(13.4)
(4.2)
13.3
0.3
1.6
1.9
A$
NPAT
before
significant
items
Europe
USA
Canada
NPAT
after
significant
items
(*)
Includes $1.2 million mark to market of ineffective €10 million interest rate swap.
Reconciliation notes to statutory income statement:
Statutory EBITDA includes significant items 1 to 3, less ineffective hedge of
$1.2 million (*)
Statutory EBIT includes significant items 1 to 4, less ineffective hedge of
$1.2 million (*)
Statutory NPAT includes significant items 1 to 6
Cash flow and balance sheet
The Group generated cash flow from operations of $175 million and free cash flow
after dividends and capital expenditure of $46 million, which was used to repay debt
during the period. The Group’s cash flow was not impacted by the one-off significant
items as they were largely non-cash charges.
The impairment and restructuring charges recognised at 30 June 2009 have reduced
net tangible assets (NTA) per share by 6 percent from $0.79 to $0.74. The reduction
in NTA per share is primarily due to impairment of small-civil construction equipment
in Europe and North America. The impairment of these specific asset classes is due
to a significant decline in construction sector activity in Europe and North America in
the past six months. However, larger mining equipment asset values have remained
relatively robust during this period, particularly in the Asia Pacific region as supply
and demand has generally remained in-line.
In the context of these equipment market environments, Emeco’s NTA per share
of $0.74 is comprised of 68 percent large mining equipment, 23 percent small-civil
construction equipment and 9 percent other net tangible assets (cash, working capital,
property and tax assets and liabilities).
The Group’s net debt at 30 June 2009 was $331 million representing an overall
decrease of $20 million from 30 June 2008. This decrease was driven by net debt
repayment of $43 million offset by an increase of $23 million due to the translation
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E M E C O 2 0 0 9 A N N U A L R E P O R T
effect of a lower AUD. A gearing ratio of 1.8 times debt to EBITDA and interest
coverage ratio of 8.1 times EBITDA to Interest Expense ensured the Group remained
comfortably compliant with its banking covenants.
Earnings before interest, tax and amortisation (EBITA) Return on Funds Employed
(ROFE) from operating performance was 11.6 percent in FY09 (FY08: 14.0 percent)
due to lower earnings in the second half from a combination of a decline in rental
utilisation and sales volumes while invested capital base remained relatively constant.
A general improvement in utilisation and sales activity coupled with strategic focus on
recycling underperforming capital is expected to drive higher return on capital going
forward. Further in-depth analysis is provided in the review of operations section.
BUILDING FOR THE LONG TERM
The durability of Emeco’s business model has been validated during the difficult trading
conditions in the second half of FY09. Emeco’s customers have continued to utilise the
rental model for varying commercial reasons from the flexible fleet configurations
we offer, capital management solutions for constrained balance sheets, high quality
equipment to enhance production efficiencies and Emeco’s ability to procure and
dispose of the equipment in the global market. We continue to develop our long-term
relationships with our quality customer base and tailor our solutions to suit their needs.
Whilst our short term focus remains on improving utilisation and further penetration
of existing markets, the Group is poised to take advantage of opportunities as they
emerge. We have continued to build the Group’s underlying capability and have
constructed significant workshop facilities in all our locations to accommodate future
fleet expansion and provide additional economies of scale.
Equally, we expect our increased focus on recycling capital into the most value
creating opportunities will deliver enhanced returns for shareholders over the
medium term. This focus is highlighted by our strategic decisions to downsize Europe,
reduce our exposure to smaller civil construction equipment, and consider the various
strategic options available to us in the USA market.
The Emeco brand is now well established globally which sets us apart from our
competitors. Coupled with a reputation for providing quality equipment and smart
solutions we are continuing to secure new contracts.
OUR PEOPLE
We continued our focus on enhancing Emeco’s safety management systems and
capability during the year. In Australia, we ended the year with a fully resourced
team of experienced safety professionals who are providing advisory, training and
monitoring services to our Australian business units. Major safety initiatives included
the development and roll out of a contractor management system, the roll out of a new
drug and alcohol policy, the completion of site safety plans at nearly all Australian
work sites, enhancements to our reporting systems with improved leading KPIs
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E M E C O 2 0 0 9 A N N U A L R E P O R T
to measure our safety performance and a significant increase in our commitment
to OHS training. We are currently committed to rolling out a new web based safety
reporting system which will greatly assist in the reporting of safety incidents and their
subsequent management.
Our goal is to ensure that all of our businesses around the world adopt best practice
OHS systems, processes and procedures and we will be conducting a comprehensive
review of the international businesses during FY10 to assess their current capabilities
and performance against that goal.
During the year we also made significant improvements to our human resource
management systems, including the introduction of a new competency based wage
structure for our Australian trade based employees, centralisation of the employee
recruitment process, and the engagement of several new staff to support our human
resource management team. We also increased our commitment to training our
people to ensure they have the skills, knowledge and ability to assist Emeco to achieve
its corporate objectives.
THE FUTURE
Having laid the foundations to withstand the challenges of recent times, Emeco is now
positioned to take advantage of an improving market environment. In the short term
we will remain focused on improving utilisation of existing fleet and, over the medium
term, seeking to liberate assets which are not core to our business. Delivering
on these two objectives will improve both the quantum and quality of the Group’s
profitability.
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E M E C O 2 0 0 9 A N N U A L R E P O R T
We expect the recovery in global credit markets to be more protracted
than the global economic recovery, which will support the counter cyclical
nature of the Emeco rental model. The bulk of our earnings growth is
expected to come from Australia, Indonesia and Canada over the next
two years, primarily through organic growth of our larger mining fleet to
meet the expected growth in commodity volumes. We will also continue
to monitor the market for external opportunities which are value creating
with acceptable risk profiles and will leverage off our core strength of asset
management.
While the operating environments in the markets we serve appear to be
stabilising, there remains uncertainty as to the profile of the recovery over
the next 12 to 18 months. However, significant work with our customers
over recent months is providing encouraging evidence of increasing activity
which is already translating into improved utilisation in the early part of the
new financial year.
Laurie Freedman
Managing Director
“ … The Emeco brand
is now well established
globally …”
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E M E C O 2 0 0 9 A N N U A L R E P O R T
The future
In the short term we will remain focused on improving utilisation of
existing fleet and, over the medium term, seeking to liberate assets
which are not core to our business. Delivering on these two objectives
will improve both the quantum and quality of the Group’s profitability.
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E M E C O 2 0 0 9 A N N U A L R E P O R T
D I R E C T O R S ’ R E P O R T F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
Independent global supplier
Our geographic spread enables us to procure very efficiently; we provide
geographic coverage for our multi-nationals customers that our locally
based competitors cannot. Size and sustainability matters, particularly for
the larger end of the industry and that’s what we provide. We also manage
equipment residual value risk better than most.
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E M E C O 2 0 0 9 A N N U A L R E P O R T
R E V I E W O F O P E R A T I O N S
Review of Operations
THE EMECO GROUP
A$M
Revenue
EBITDA
EBIT
NPATA
NPAT
No. of Rental machines
No. of machine Sales
FY08
Operating
617.9
213.5
119.2
68.6
67.5
1,071 units
672 units
FY09 Operating
(pre significant
items)
528.2
210.9
105.9
58.1
57.7
1,120 units
346 units
FY09 Statutory
(post significant
items)
528.2
185.3
67.7
26.2
13.3
1,120 units
346 units
YOY %
Operating
(14.5)
(1.2)
(11.2)
(15.3)
(14.5)
4.5
(48.8)
The Group’s FY09 revenue of $528.2 million and operating EBIT of $105.9 million
was down 14.5 percent and 11.2 percent respectively as compared to the prior
corresponding period. The lower earnings was attributable to a rapid decline in
utilisation and sales volumes in the second half of FY09 due to volatility in mining and
construction activity related to the global economic crisis. Profit on sale of rental
assets (POSA) in FY09 was $3.9 million (FY08: $9.5 million) on total asset disposals
proceeds of $21.3 million (FY08: $43.8 million). NPAT pre-significant items declined
14.7 percent from $67.5 million to $57.7 million in FY09.
In addition to the operating NPAT of $57.7 million for the year ended 30 June 2009,
Emeco incurred significant one-off impairment and restructuring charges totalling
$44.5 million, resulting in a statutory NPAT of $13.3 million. Details as follows:
•
As a consequence of the strategy to downsize the European business, the Group
incurred an impairment and restructuring charge of $26.8 million.
•
Due to the uncertain outlook for the USA business the Group impaired the goodwill
and deferred tax assets to the extent of $9.9 million.
•
Impairment of specific small civil-construction equipment in North America due to
construction activity decline and significant over supply has impacted market asset
values. This resulted in an impairment of tangible assets of $7.7 million on after
tax basis ($9.3 million pre-tax).
“… Emeco’s Australian
Rental business is well
Depreciation increased by 12.4 percent to $104.6 million for the year ended
30 June 2009 as compared to the previous corresponding period. The increase in
depreciation is primarily due to the increase in the size of the rental fleet from 1,071
machines as at 30 June 2008 to 1,120 machines as at 30 June 2009. In addition,
underutilised rental fleet attracted minimum hour depreciation charges without
diversifi ed …”
associated revenue further impacting margins.
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E M E C O 2 0 0 9 A N N U A L R E P O R T
R E V I E W O F O P E R A T I O N S
EMECO OPERATING SEGMENTS
A$M
Revenue
Rental
Sales
Parts
EBIT
Rental
Sales
Parts
FY08
Operating
617.9
372.3
210.6
34.9
119.2
106.9
8.6
3.7
FY09
Operating
528.2
391.3
110.2
26.7
105.9
94.7
6.5
4.7
FY09
Statutory
528.2
391.3
110.2
26.7
67.7
87.4
(20.4)
0.7
YOY%
Operating
(14.5)
5.0
(47.7)
(23.5)
(11.2)
(11.4)
(24.4)
27.0
GEOGRAPHIC HIGHLIGHTS
Australia
A$M
Revenue
EBITDA
EBIT
Rental machines
Machine Sales
FY08
Operating
459.5
168.8
100.4
582 units
324 units
FY09
Operating
363.5
148.1
80.6
561 units
169 units
FY09
Statutory
363.5
148.1
80.6
561 units
169 units
YOY%
Operating
(20.9)
(12.3)
(19.7)
(3.6)
(48.5)
Emeco’s Australian Rental business is well diversified across states, customers
and commodities. However, the extraordinary market conditions in the second half
of FY09 significantly impacted overall utilisation levels. Macro economic factors
increased miners’ financial risks and in turn some mines were closed or short-term
production volumes were reduced. In particular, utilisation linked to the production of
metalliferous coal in Queensland was heavily impacted and Emeco’s iron ore and gold
orientated fleet in Western Australia also operated below full utilisation. Competition
in Queensland and Western Australia increased due to lower production volumes and
an over supply of rental equipment in the market. Contrasting this, was sustained
utilisation in New South Wales due to robust activity in thermal coal and gold sectors
and strengthening demand in Victoria and South Australia related to infrastructure
related activity.
Major achievements in the year included winning two Government funded civil
construction contracts, gaining preferred supplier status with one of the world’s
biggest mining companies and nomination for the Goldfields Business Awards,
Kalgoorlie.
Emeco’s Australian Sales business recorded lower than expected sales due to
customers’ capital/finance constraints plus the Government’s introduction of tax
incentives which diverted buyers from used to new equipment purchases. Emeco’s
Australian Parts’ volumes were also down as purchases were deferred.
1 8
“… Major achievements in
the year included equipment
supply to two Government
infrastructure projects …”
D I R E C T O R S ’ R E P O R T F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
E M E C O 2 0 0 9 A N N U A L R E P O R T
Indonesia
A$M
Revenue
EBITDA
EBIT
Rental machines
FY08
Operating
23.8
18.5
9.8
129 units
FY09
Operating
50.5
33.4
18.6
203 units
FY09
Statutory
50.5
33.4
18.6
203 units
YOY%
Operating
112.2
80.5
89.8
57.4
Emeco’s Indonesian subsidiary, PT Prima Traktor IndoNusa (PTI) experienced exciting
growth in revenue and EBIT. During the year Indonesia was the world’s biggest
exporter of thermal coal, with export volumes anticipated to remain constant in FY10.
In addition, domestic and coking coal activity is expanding.
Despite weather and infrastructure challenges, Emeco continues to enjoy increasing
penetration of the market and has successfully won two major contracts through the
year. The Company continues to develop relationships with key industry players and
find innovative solutions to our customers’ transport and financing constraints. This
improving outlook underpinned the decision to invest further in the business over the
past 12 months.
Based on the second half performance of PTI which was underpinned by strong
market fundamentals, positive earnings performance is expected to continue for this
business into FY10.
1 9
“… Emeco continues to
diversify its customer and
commodity exposure by
expanding organically …“
E M E C O 2 0 0 9 A N N U A L R E P O R T
R E V I E W O F O P E R A T I O N S
Canada
A$M
Revenue
EBITDA
EBIT
Rental machines
FY08
Operating
51.7
27.8
15.5
277 units
FY09
Operating (1)
49.8
25.6
9.5
264 units
FY09
Statutory
49.8
19.8
3.7
264 units
YOY%
Operating
(3.7)
(7.9)
(38.7)
(4.7)
(1) Excludes significant items as set out on pages 10 and 11 (Canada) of the Managing
Director’s Report.
Emeco’s Canadian business grew strongly in the first half of FY09 due to large levels
of construction activity and mine development in the Fort McMurray oil sands region.
However, the collapse in oil prices and contraction of capital markets resulted in a
substantial wind back in oil sands construction and expansion in the second half. In
addition, the traditional winter drilling programme was halted due to depressed
natural gas prices, which in conjunction with reduced activity in broader construction
activity significantly impacted utilisation of Canada’s small civil-construction
equipment. This resulted in an impairment of certain smaller equipment during the
period. Following the impairment to these specific units, the strategy is to downsize
the small civil equipment in the Canadian fleet.
The oil sands sector remains the engine for Emeco’s growth in the Canadian
marketplace; however, Emeco continues to diversify its customer and commodity
exposure by expanding organically into the coal market in Western Canada, gold in
Northern Ontario and regionally into Northern Canada.
United States of America (USA)
A$M
Revenue
EBITDA
EBIT
Rental machines
FY08
Operating
43.2
(1.0)
(4.1)
75 units
FY09
Operating (1)
46.6
6.4
1.8
74 units
FY09
Statutory
46.6
2.9
(7.3)
74 units
YOY%
Operating
7.9
740.0
143.9
1.3
(1) Excludes significant items as set out on pages 10 and 11 (USA) of the Managing
Director’s Report.
Emeco’s USA Rental business was experiencing strong utilisation in the first half of
2009 financial year. However, depressed activity in the Appalachian coal region, driven
by lower coal prices adversely affected utilisation during the second half. Emeco’s
exposure to this mining region has prompted a due diligence study of prospective new
mining markets in the Western regions of the USA. Given the earnings volatility and
uncertainty around the earnings profile, the goodwill and deferred tax assets have
been impaired. The sales inventory comprising small-sized construction equipment
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R E V I E W O F O P E R A T I O N S
has also been impaired due to significant declines in construction sector activity.
Following the impairment of the Sales inventory, the strategy is to downsize the
inventory levels to liberate the cash for alternative purposes.
Europe
A$M
Revenue
EBITDA
EBIT
Rental machines
Machine Sales
FY08
Operating
39.6
(0.6)
(1.3)
8 units
133 units
FY09
Operating (1)
17.8
(2.6)
(4.5)
17 units
114 units
FY09
Statutory
17.8
(18.9)
(27.7)
17 units
114 units
YOY%
Operating
(55.1)
(333.3)
(246.2)
112.5
(14.3)
(1) Excludes significant items as set out on pages 10 and 11 (Europe) of the Managing
Director’s Report.
Due to the ongoing underperformance of the European business, management
undertook a strategic review in late FY09. As a result of this review we have
commenced a major downsizing and restructuring of the business. It is expected
that Europe will remain a procurement hub for the Group and we will continue our
presence in the region and monitor potential longer term opportunities; however, the
level of invested capital and overheads will be significantly reduced.
CAPITAL EXPENDITURE AND CASH FLOW
During the year strict capital management guidelines were put in place to limit all
unnecessary expenditure. As a result, working capital improved by $33 million and
the Group generated cash flow from operations of $175 million. Positive free cash
flow generation of $46 million was used to repay debt during the period. The Group’s
cash flow was not impacted by the one-off significant items as they were largely non-
cash charges.
Net sustaining capital expenditure (capex) of $34 million and growth capex of $52.4
million was committed during the year, significantly lower than the prior period. This
resulted from the strategy to focus on redeploying idle machinery between regions
and/or countries before committing fresh capital.
Table below details Rental capital expenditure:
A$M
Maintenance capex
Disposals
Net Sustaining capex
Growth capex
Total Net Capex
FY08
Operating
121.6
(43.8)
77.8
106.8
184.6
FY09
Operating
55.3
(21.3)
34.0
52.4
86.4
FY09
Statutory
55.3
(21.3)
34.0
52.4
86.4
YOY%
Operating
(54.5)
(51.4)
(56.3)
(50.9)
(53.2)
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E M E C O 2 0 0 9 A N N U A L R E P O R T
ROFE
%
ROFE EBITDA %
ROFE EBITA %
FY08
Operating
24.7
14.0
FY09
Operating
23.0
11.6
FY09
Statutory
20.3
7.5
YOY
Operating
(1.7)
(2.4)
EBITDA ROFE of 23.0 percent and EBITA ROFE of 11.6 percent in the year ended
30 June 2009 are below historical averages given the trading conditions. The firm
focus of management remains on continuing to improve utilisation and capital
efficiency within the business and restoring EBITA ROFEs to historical levels of around
20 percent.
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E M E C O 2 0 0 9 A N N U A L R E P O R T
The Emeco Board
(L-R) Michael Kirkpatrick, General Manager Corporate Services, Stephen Gobby, Chief Financial Officer, Robin Adair, Executive
Director, Corporate Strategy & Business Development, Alec Brennan, Chairman and Independent Non-Executive Director, Laurie
Freedman, Managing Director, Robert Bishop, Independent Non-Executive Director, Peter Johnston, Independent Non-Executive
Director and John Cahill, Independent Non-Executive Director.
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E M E C O 2 0 0 9 A N N U A L R E P O R T
Financial Report
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D I R E C T O R S ’ R E P O R T F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
Directors’ Report
The Directors of Emeco Holdings Limited (‘Emeco’ or ‘the Company’) present their report together with the financial reports of the consolidated
entity, being Emeco and its controlled entities (‘the Emeco Group’ or ‘the Consolidated Entity’) for the financial year ended 30 June 2009 (FY09).
Directors
The Directors of the Company during or since the end of the financial year are:
Alec Brennan
(Age 62), Chairman and Independent Non-Executive Director
Alec was appointed an Independent, Non-Executive Director in August 2005 and Chairman from 28 November 2006.
Alec was Chief Executive Officer of CSR until March 2007. Alec holds an MBA from City University, London and a BSc from the University of NSW. He
is Chair of Tomago Aluminium Pty Ltd and of PPI Corporation Pty Ltd, and a Fellow of the Senate of Sydney University.
Robin Adair
(Age 48), Executive Director, Corporate Strategy & Business Development
Robin was appointed Executive Director, Corporate Strategy and Business Development in March 2008. Robin was Chief Financial Officer of the
Company from January 2005 until his appointment to his current role.
Robin has 15 years commercial experience across a breadth of business units within the CSR group. After spending 12 months as Chief Financial
Officer of Beltreco, he joined Emeco’s business as Chief Financial Officer in October 2000. Robin has been responsible for a number of business
evaluations, start-ups, acquisitions, joint ventures, disposals, and business and system improvements over this period. His international
experience includes engagements in Taiwan, Indonesia, Thailand, Europe and the USA. Robin holds a Bachelor of Business (Accountancy) from
University of South Australia and a Master of Business Administration from Deakin University and is a Certified Practising Accountant.
Robert (‘Bob’) Bishop
(Age 64), Independent Non-Executive Director
Bob was appointed as an Independent, Non-Executive Director on 22 June 2009. He holds a Master of Science Degree in Production Engineering
from the University of Birmingham, UK, and is a Member of the Institute of Engineers Australia and a Fellow of the Australian Institute of Company
Directors.
Bob is a former Managing Director of Joyce Corporation Ltd (1989 to 1994) and Dorsogna Ltd (1994 to 1997). Most recently Bob was the Chief
Executive Officer of the global mining and tunnelling division of DYWIDAG Systems International GmbH (DSI), a position he held from 2003 to 2008.
Bob has extensive international business experience having worked in the UK, South Africa, and Europe.
John Cahill
(Age 53), Independent Non-Executive Director
John was appointed as an Independent, Non-Executive Director on 15 September 2008.
John is a former Chief Executive Officer of Alinta Infrastructure Holdings and Chief Financial Officer of Alinta Ltd. He is a Director of Electricity
Networks Corporation which trades as Western Power. John is a Graduate Member of the Australian Institute of Company Directors and a Fellow,
Deputy President and Director of CPA Australia Ltd.
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Laurie Freedman
(Age 60), Managing Director
Laurie was appointed Managing Director of Emeco Holdings Limited in January 2005, but has been Managing Director of Emeco’s business
since 1999.
Laurie has over 39 years experience in the building, construction materials and contracting industries both in Australia and overseas, including
senior management roles with CSR in Hong Kong, China and the United States. Laurie was a Director and Chief Executive Officer of AWP
Contractors, contract miners, for five years before joining Emeco in April 1999. Laurie holds a Bachelor of Civil Engineering from Curtin University,
is an Associate of the Australian Institute of Management and a Member of the Australian Institute of Company Directors.
Peter Johnston
(Age 58), Independent Non-Executive Director
Peter was appointed as an Independent, Non-Executive Director on 1 September 2006.
Peter is currently Managing Director and CEO of Minara Resources Limited, a position he has occupied since December 2001. He previously held
senior executive positions with WMC and Alcoa.
Peter is a graduate from the University of Western Australia. He is a Fellow of the Australian Institute of Mining and Metallurgy and a Fellow of
the Australian Institute of Company Directors. He is currently the Chairman of the Nickel Institute and is Vice Chairman of the Minerals Council
of Australia. Peter is on the Executive Council of The Chamber of Minerals and Energy WA and a Director of the Australian Mines and Metals
Association. He is also on the Board of Directors of Silver Lake Resources Limited.
Greg Minton
(Age 46), Independent Non-Executive Director
Greg was appointed as an Independent, Non-Executive Director and also as Chairman of the Board in December 2004. Greg resigned as Chairman
with effect from 28 November 2006.
Greg is Managing Partner of Archer Capital and has been since 2000 after having spent six years in senior general management roles with CSR.
Prior to his involvement with CSR, Greg was a management consultant with McKinsey & Co in Australia, Scandinavia and the UK. Greg is the
Chairman of One Source Group Limited (NZ), Leasing Solutions Limited (NZ) and iNova Pharmaceuticals Pty Ltd and a former Director of RED
Paper Group, BJ Ball Holdings (NZ), Repco Limited, Hirequip Limited (NZ) and Onesource Australia Pty Ltd. Greg holds a Master of Business
Administration from IMD, Switzerland, a Bachelor of Engineering and a Bachelor of Economics from the University of Queensland.
Greg resigned as a Director of the Company on 25 June 2009.
Paul McCullagh
(Age 57), Independent Non-Executive Director
Paul was appointed as an Independent, Non-Executive Director in December 2004.
Paul is a founding Managing Director at Pacific Equity Partners (PEP) and his current portfolio of board positions include Xtralis Group Holdings
Limited and Link Administration Holdings Pty Limited. Prior to founding PEP, Paul was the managing director of Salomon Brothers Australia. Paul
was also previously head of Australasia for Prudential Securities. He has been active in Australasia since 1986 and has a wide range of transaction
experience. Paul holds a Bachelor of Commerce and a Master of Business Studies from University College, Dublin, and is a Fellow of the Institute of
Chartered Accountants in England, Ireland and Wales. Paul is also a member of the Institute of Chartered Accountants in Australia.
Paul resigned as a Director of the Company on 12 November 2008.
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Company Secretary
Michael Kirkpatrick was appointed Company Secretary in April 2005. Michael has previously worked as legal counsel and company secretary of
a large industry superannuation fund, and as a corporate lawyer with several national law firms. Michael holds Bachelor Degrees in Arts and
Economics from the University of Western Australia and a Law Degree with merit honours from Murdoch University.
Directors’ Meetings
The number of meetings of the Directors held during the year and the number of meetings attended by each of the Directors of the Board and
committees is outlined in the table below.
Table 1 – Directors’ attendance
Director
Board Meetings
Audit & Risk
Management Committee
Remuneration & Nomination
Committee
Alec Brennan
Greg Minton
Laurie Freedman
Peter Johnston
Robin Adair
John Cahill
Paul McCullagh
Robert Bishop
A
10
9
10
9
10
9
3
1
B
10
10
10
10
10
9
3
1
A
5
5
**
**
**
4
2
**
B
5
5
**
**
**
4
2
**
A
3
3
**
3
**
**
**
**
B
3
3
**
3
**
**
**
-
A – Number of meetings attended
B – Number of meetings held during the time the Director held office during the year
** Not a member of this committee
Mr Bishop was appointed a Director on 22 June 2009.
Mr Cahill was appointed a Director on 15 September 2008.
Mr McCullagh resigned as a Director on 12 November 2008.
Mr Minton resigned as a Director on 25 June 2009.
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Corporate Governance Statement
Under ASX listing rule 4.10.3, the Company is required to include in its Annual Report a statement disclosing the extent to which it has followed the
principles of good corporate governance (ASX Principles) and associated best practice recommendations set by the ASX Corporate Governance
Council (ASX Best Practice Recommendations).
This corporate governance statement reports on the Emeco Group’s current corporate governance practices and policies by reference to the
revised ASX Principles and ASX Best Practice Recommendations adopted by the ASX Corporate Governance Council which took effect from
1 January 2008.
Principle 1 Lay solid foundations for management and oversight
Roles and responsibilities of the Board and management
The Board has adopted a Charter that details its functions and responsibilities.
The Charter sets out the responsibilities of:
•
•
•
the Board;
individual Directors; and
the Chairman.
Under the Charter the Board is accountable to the shareholders for the overall performance of the Company and the management of its affairs. Key
responsibilities of the Board include:
•
•
•
•
•
•
•
developing and approving corporate strategy;
evaluating, approving and monitoring the strategic and financial plans and objectives of the Company;
determining dividend policy and the amount and timing of all dividends;
evaluating, approving and monitoring major capital expenditure, capital management and all major acquisitions, divestitures and other corporate
transactions, including the issue of securities;
evaluating and monitoring annual budgets and business plans;
approving all accounting policies, financial reports and external communications by the Emeco Group; and
appointing, monitoring and managing the performance of Executive Directors.
The Charter sets a minimum number of Board meetings and provides for the establishment of the Audit and Risk Committee and the Remuneration
and Nomination Committee. The Charter also sets minimum standards of ethical conduct of the Directors, which are further elaborated on in
the Company’s Code of Conduct, and specifies the terms on which Directors are able to obtain independent professional advice at the Company’s
expense.
A copy of the Board Charter is available on the Emeco website.
In May 2009 the Company adopted a Chief Executive Officer’s delegation of financial authority (DFA). The DFA applies to the Emeco Group for the
purpose of setting the limits of authority of officers and employees for committing the group to expenditure and contracts. The DFA ensures that
contract commitments and expenditure is limited to:
•
•
•
contractual commitments in the ordinary course of business;
operational expenditure (those costs incurred in the day to day running of the business); and
capital expenditure (the purchase of assets for the purpose of deriving income).
The DFA sets levels of permitted contract and expenditure commitment for employees across the Group. Authority limits have been set as a risk
management tool to ensure adequate controls are in place when committing the group to a contract or incurring costs.
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Evaluating the performance of senior executives
The performance of the Managing Director is constantly monitored by the Non-Executive Directors.
Formal reviews of the performance of each senior executive within the Emeco Group are conducted by the Managing Director in August/September
each year. These performance reviews provide the Managing Director and each senior executive with the opportunity not only to review the
executive’s performance against a range of financial and operational benchmarks but also to review and assess the manager’s personal and
professional development objectives. A review of the performance of each senior executive was undertaken during FY09.
Principle 2 Structure the Board to add value
Skills, experience and expertise of the Directors
The Directors consider that collectively they have the relevant skills, experience and expertise to fulfil their obligations to the Company, its
shareholders and other stakeholders.
The Directors and a brief description of their skills and experience are set out at pages 26 to 27 of this report.
Status of the Directors
The table below sets out details of the status of each of the current Directors as Independent or Non-Executive Directors, their date of appointment
and whether they are seeking re-election at the 2009 AGM of the Company.
Table 2 – Status of the Directors
Director
Date of appointment
Independent
Non-Executive
Mr Robin Adair
Mr Alec Brennan
Mr Laurie Freedman
Mr Peter Johnston
Mr John Cahill
Mr Robert Bishop
21 January 2005
16 August 2005
21 January 2005
1 September 2006
15 September 2008
22 June 2009
No
Yes
No
Yes
Yes
Yes
No
Yes
No
Yes
Yes
Yes
Seeking re-election
at 2009 AGM
No
No
No
Yes
No
Yes
(A) Mr Paul McCullagh resigned as a Director on 12 November 2008.
(B) Mr Greg Minton resigned as a Director on 25 June 2009.
Mr Brennan, Mr Johnston, Mr Cahill and Mr Bishop are independent Directors. All of them satisfy the criteria for independence set out in the
Corporate Governance Principles and Recommendations. Messrs Minton and McCullagh were also independent Directors. The Company therefore
complies with ASX Best Practice Recommendation 2.1.
Mr Brennan is the Chairperson of the Board and the Company therefore complies with ASX Best Practice Recommendation 2.2. Mr Freedman is the
Chief Executive Officer and Managing Director.
Directors’ retirement and reappointment
Under the terms of the Company’s constitution, a Director other than the Managing Director must retire from office or seek re-election by no later
than the third Annual General Meeting after their appointment or three years, whichever is the longer.
At least one Director must retire from office at each Annual General Meeting, unless determined otherwise by a resolution of the Company’s
shareholders.
Messrs Bishop and Johnston will seek reappointment at the 2009 Annual General Meeting.
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The Board has established criteria for the appointment of Non-Executive Directors of the Company. These criteria provide that an incoming Director
must:
•
•
•
•
•
•
•
•
have no actual or potential conflicts of interest at the time of appointment;
have no prior adverse history. A potential candidate’s bankruptcy, a conviction for an offence of dishonesty or any other serious criminal conviction,
ASIC or APRA disqualification etc would disqualify a person from further consideration as a candidate;
have a deserved reputation for honesty, integrity and competence;
have extensive experience at a senior executive level in a field relevant to the Emeco Group’s operations and preferably with a listed company;
have high level strategic, financial and commercial capability;
be available and willing to devote the time required to meetings and Company business and have a real commitment to the Emeco Group and its
success;
be able to work harmoniously with fellow directors and management; and
have skills, experience and knowledge which complement the skills, experience and knowledge of incumbent Directors.
Procedure for taking professional advice
Under the Board Charter a Director is entitled to seek professional advice at the Company’s expense on any matter connected with the discharge of
their duties in accordance with the procedure set out in the Charter, a copy of which is available on the Emeco website.
Remuneration and Nomination Committee
The Company has established a Remuneration and Nomination Committee, the responsibilities of which include:
•
•
•
critically reviewing the performance and effectiveness of the Board and its individual members;
periodically assessing the skills required to discharge the Board’s duties, having regard to the strategic direction of the Company; and
reviewing the membership and performance of other Board Committees and make recommendations to the Board.
Members of the Remuneration and Nomination Committee are Mr Brennan (Chair), Mr Cahill and Mr Johnston. Mr Cahill succeeded Mr Minton as a
member of the committee following the latter’s resignation as a Director. The charter of the Remuneration and Nomination Committee is available
on the Emeco website.
Process for evaluating the Board, its Committees and Directors
A review of the performance of the Board was completed in August 2009 by the Chairman with the assistance of the Remuneration and Nomination
Committee. The review was undertaken in accordance with the charter of the Remuneration and Nomination Committee using a comprehensive
questionnaire, the scope of which covered the performance of the Board, its Committees, the Chairman and individual Directors. Directors’
questionnaire responses (other than in relation to the Chairman) were collated and analysed by the Chairman and, where appropriate, discussed
with the Board. An analysis of the questionnaire results was presented to the Board by the Chairman. In relation to the Chairman, Directors’
questionnaire responses were collated and analysed by the Managing Director and discussed with the Board.
Principle 3 Promote ethical and responsible decision making
The Company considers that confidence in its integrity can only be achieved if its employees and officers conduct themselves ethically in all of their
commercial dealings on the Company’s behalf. The Company has therefore recognised that it should actively promote ethical conduct amongst its
employees, officers and contractors.
The Company has adopted a Code of Conduct and a Share Trading Policy. The Code of Conduct and the Share Trading Policy apply to all Directors,
officers, employees, consultants and contractors of the Company and its subsidiaries.
The Code of Conduct
The objectives of the Code of Conduct are to ensure that:
•
high standards of corporate and individual behaviour are observed by all employees in the context of their employment with the Company or a
subsidiary;
•
employees are aware of their responsibilities under their contract of employment and always act in an ethical and professional manner; and
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•
all persons dealing with Emeco, whether it be employees, shareholders, suppliers, clients or competitors, can be guided by the stated values and
practices of Emeco.
Under the Code of Conduct, employees of the Emeco Group must, amongst other things:
•
•
•
•
act honestly and in good faith at all times and in a manner which is in the best interests of the Company as a whole;
conduct their personal activities in a manner that is lawful and avoids conflicts of interest between the employee’s personal interests and those
of the Company;
always act in a manner that is in compliance with the laws and regulations of the country in which they work; and
report any actual or potential breaches of the law, the Code of Conduct or the Company’s other policies to the Company Secretary.
The Company actively promotes and encourages ethical behaviour and protection for those who report violations of the Code or other unlawful
or unethical conduct in good faith. The Company ensures that employees are not disadvantaged in any way for reporting violations of the Code or
other unlawful or unethical conduct and that matters are dealt with promptly and fairly.
The Share Trading Policy
The Share Trading Policy is specifically designed to raise awareness of, and minimise any potential for breach of, the prohibitions on insider trading
contained in the Corporations Act 2001. The policy is also designed to minimise the chance that misunderstandings or suspicions arise regarding
employees trading while in possession of non-public price sensitive information by imposing restrictions on employees and officers in relation to
the trading of the Company’s shares.
Copies of the Code of Conduct and the Share Trading Policy are available on the Emeco website.
Principle 4 Safeguard integrity in financial reporting
The Board has established an Audit & Risk Committee to support and advise the Board in fulfilling its responsibilities to shareholders, employees
and other stakeholders of the Company by:
•
assisting the Board in fulfilling its oversight responsibilities for the financial reporting process, the system of internal control relating to all
matters affecting the Company’s financial performance, the audit process, and the Company’s process for monitoring compliance with laws and
regulations and the Code of Conduct; and
•
implementing and supervising the Company’s risk management framework.
Members of the Audit and Risk Committee are Mr Cahill (Chair), Mr Bishop and Mr Brennan. Mr Cahill succeeded Mr McCullagh as the Chairman of
the Committee following the latter’s resignation as a Director. Mr Bishop succeeded Mr Minton as a member of the Committee following the latter’s
resignation as a Director.
The Audit & Risk Committee Charter sets out the role and responsibilities of the Committee and is available on the Emeco website.
Details regarding membership of the Committee are set out above. During FY09, the Committee comprised three Independent Non-Executive
Directors all of whom have financial expertise. Details of the qualifications of the members of the Committee are set out at pages 26 to 27 of this
report. During FY09, the Committee met five times. All current members of the Committee were present for each of these meetings other than
Mr Bishop who was appointed to the Committee in July 2009 following the departure of Mr Minton.
Principle 5 Make timely and balanced disclosure
The Company is committed to complying with its continuous disclosure obligations under the ASX Listing Rules and disclosing to investors and
other stakeholders all material information about the Company in a timely and responsive manner.
The Company has adopted a Continuous Disclosure Policy which is available on the Emeco website.
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The Continuous Disclosure Policy specifies the processes by which the Company ensures compliance with its continuous disclosure obligations.
The policy sets out the internal notification and decision making procedures in relation to these obligations, and the roles and responsibilities of the
Company’s officers and employees in the context of these obligations. It emphasises a proactive approach to continuous disclosure and requires the
Company to comply with the spirit as well as the letter of the ASX continuous disclosure requirements.
The policy specifies the Company representatives who are authorised to speak publicly on behalf of the Company and procedures for dealing with
analysts. It also sets out how the Company deals with market rumour and speculation.
Principle 6 Respect the rights of shareholders
The Company acknowledges the importance of effective communication with its shareholders and encourages their effective participation at
general meetings.
All public announcements are posted on the Emeco website after they have been released to the ASX. The Company also places the full text of
notices of meetings and explanatory material on the website.
The Company offers a number of options to shareholders in relation to electronic communications. Shareholders can elect to receive notification
by email when payment advices, annual reports and notices of meetings and proxy forms are available online. They can also elect to receive email
notification of important announcements.
Shareholders are given an opportunity to ask questions of the Directors at the Company’s general meetings. The Company provides its auditor with
notice of general meetings of the Company, as is required by section 249K of the Corporations Act 2001. The Company also requests its auditor
to attend its Annual General Meetings and be available to answer shareholder questions about the conduct of the audit and the preparation and
content of the Auditor’s Report.
Principle 7 Recognise and manage risk
The Board believes that risk management is fundamental to sound management and that oversight of such matters is an important responsibility of
the Board. The Board, with assistance from the Audit and Risk Committee, is responsible for ensuring there are adequate processes and policies in
place to identify, assess and mitigate risk.
Emeco has adopted a Risk Management Policy. It has also implemented a formal Enterprise Risk Management programme, and has adopted
measures to ensure that risk management concepts and awareness are embedded into the culture of the organisation. This programme includes
the involvement of senior executives and senior operational management. The key elements of Emeco’s risk management programme are:
•
•
•
•
•
•
classification of risk into strategic, operational, financial and compliance risks;
the quantification and ranking of risk consequences and likelihood;
the identification of strategic risk issues;
the identification of operational risk issues through formalised regional-based risk workshops;
the development of a Company database for communicating and updating activity and progress on risk matters and maintaining risk registers;
the identification, enhancement and development of key internal controls to address risk issues including risk treatment plans and assigning
accountabilities for identified risks to senior Emeco employees; and
•
a comprehensive insurance programme.
The Audit and Risk Committee is responsible for reviewing the effectiveness of the overall risk management framework. It is also required to
review the Risk Management Policy on an annual basis.
Emeco has established a group corporate assurance unit to assist management to ensure the Emeco Group’s risk management and internal control
3 3
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systems are operating effectively. The internal assurance process is undertaken by the Risk and Corporate Assurance Manager who provides
assurance to the Audit and Risk Committee and the Board regarding the effectiveness of the Emeco Group’s risk management, governance and
control frameworks.
For FY09, the Board has received an assurance from the Managing Director and the Chief Financial Officer that the declaration provided in
accordance with section 295A of the Corporations Act 2001 is founded on a sound system of risk management and internal control and that the
system is operating effectively in all material respects in relation to financial reporting risks. Management has also reported to the Board that the
Emeco Group’s risk management and internal compliance and control system is operating efficiently and effectively in all material respects.
The Risk Management Policy is available on the Emeco website.
Principle 8 Remunerate fairly and responsibly
The Emeco Group remuneration policy is substantially reflected in the objectives of the Remuneration and Nomination Committee. The Committee’s
remuneration objectives are to endeavour to ensure that:
•
•
the Directors and senior management of the Group are remunerated fairly and appropriately;
the remuneration policies and outcomes strike an appropriate balance between the interests of the Company’s shareholders, and rewarding and
motivating the Group’s executives and employees in order to secure the long term benefits of their energy and loyalty; and
•
the human resources policies and practices are consistent with and complementary to the strategic direction and human resources objectives of
the Company as determined by the Board.
Under its Charter, the Remuneration and Nomination Committee is required to review and make recommendations to the Board about:
•
the general remuneration strategy for the Group so that it motivates the Group’s executives and employees to pursue the long term growth and
success of the Group and establishes a fair and transparent relationship between individual performance and remuneration;
•
the terms of remuneration for the Executive Directors and other senior management of the Group from time to time including the criteria for
assessing performance;
•
the outcomes of remuneration reviews for executives collectively, and the individual reviews for the Executive Directors, and other senior
management of the Group;
remuneration reviews for Executive and Non-Executive Directors;
changes in remuneration policy and practices, including superannuation and other benefits;
employee equity plans and allocations under those plans; and
the disclosure of remuneration requirements in the Company’s public materials including ASX filings and the Annual Report.
•
•
•
•
Details regarding membership of the Remuneration and Nomination Committee are set out above under Principle 2. During FY09, the Committee
met three times. All members of the Committee were present for the meetings.
Emeco clearly distinguishes the structure of Non-Executive Directors’ remuneration from that of Executive Directors and senior executives. Non-
Executive Directors are remunerated by way of fees in the form of cash benefits and superannuation contributions. They do not receive options or
bonus payments; nor are they provided with retirement benefits other than superannuation.
A remuneration report detailing the information required by section 300A of the Corporations Act 2001 in relation to FY09 is included in the
Directors’ Report.
Nature of operations and principal activities
The principal activities during the financial year of the entities within the Emeco Group were the Rental, Sales, Parts and Asset Management of
heavy earthmoving equipment.
As set out in this report, the nature of the Emeco Group’s operations and principal activities, have been consistent throughout the financial year.
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Operating and financial review
A review of Emeco Group operations, and the results of those operations for FY09, is set out on pages 17 to 23 and in the accompanying financial
statements.
Dividends paid or to be paid
During the 2008/2009 financial year a fully franked interim dividend of 2.0 cents per share was paid on 9 April 2009 by the Company.
Since the end of the 2008/2009 financial year the Directors have declared a fully franked final dividend of 2.0 cents per share to be paid on
30 September 2009.
Significant changes in state of affairs
During the financial year under review there were no significant changes in the Emeco Group’s state of affairs other than those disclosed in the
operating and financial review section above or in the financial statements and the notes thereto.
Significant events after balance date
During the financial year under review there were no significant events after the balance date other than the declaration of dividend noted above.
Likely developments and expected results
Likely developments in, and expected results of, the operations of the Emeco Group are referred to on pages 6 to 23. This report omits information
on likely developments in the Emeco Group in future financial years and the expected results of those operations the disclosure of which, in the
opinion of the Directors, would be likely to result in unreasonable prejudice to the Emeco Group.
Director’s interest in shares of the Company
The relevant interests of each Director in the shares, debentures, and rights or options over such shares or debentures issued by the companies within
the Emeco Group and other related bodies corporate, as notified by the Directors to the ASX in accordance with section 205G(1) of the Corporations
Act 2001, at the date of this report are as follows:
Table 3 – Directors’ Interests
Greg Minton
Laurie Freedman
Robin Adair
Alec Brennan
Peter Johnston
Paul McCullagh
John Cahill
Robert Bishop
Ordinary shares
361,267
20,000,000
6,300,000
1,581,700
100,000
216,707
120,000
-
Options over ordinary shares
-
3,200,000 (*)
1,066,667 (*)
-
-
-
-
-
(*) With effect from 26 August 2009, Mr Freedman will forfeit 1,600,000 options and Mr Adair will forfeit 533,333 options. These forfeitures will
occur because, under the terms of the Options Plan, the Company’s earnings per share target for FY09 was not achieved. For further details,
see page 38 of this report.
3 5
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Remuneration report (audited)
This report summarises the Emeco Group’s remuneration practices and outcomes in respect of its Directors and senior executives for the 2009
financial year.
Principles of remuneration
The Emeco Group remuneration policy is substantially reflected in the objectives of the Board’s Remuneration and Nomination Committee. The
Committee’s objectives are to endeavour to ensure that:
•
•
the Directors of the Company and senior management of the Group are remunerated fairly and appropriately;
the remuneration policies and outcomes of the Company strike an appropriate balance between the interests of the Company’s shareholders, and
rewarding and motivating the Group’s executives and employees in order to secure the long term benefits of their energy and loyalty; and
•
the human resources policies and practices are consistent with and complementary to the strategic direction and human resources objectives of
the Company as determined by the Board.
Elements of remuneration
The remuneration structure for Emeco’s executives consists of fixed and variable components.
Fixed remuneration
Fixed remuneration comprises base salary, employer superannuation contributions and other allowances such as motor vehicle allowances and
non-cash benefits.
Each executive’s fixed remuneration is reviewed and benchmarked against appropriate market comparisons annually in September. The executive’s
responsibilities, experience, qualifications, performance and geographic location are also taken into account.
Emeco’s broad objective is to set fixed remuneration at levels which ensure the Company is able to attract and retain the best available key
executives. The policy of the Company is to set fixed remuneration at levels which attract and retain appropriately qualified and experienced
executives capable of:
•
•
•
fulfilling their respective roles within the Group;
achieving the Group’s strategic objectives; and
maximising Emeco Group earnings and the returns to shareholders.
Variable remuneration
Variable remuneration is performance linked remuneration which consists of short term incentives (STIs) and long term incentives (LTIs).
STI remuneration
Short term incentives are used to reward the performance of key management personnel over a full financial year. The maximum achievable STI
amount payable to an executive is set as a percentage of fixed remuneration. The actual amount of STI payable is determined at the end of the
financial year in light of the executive’s performance against agreed key performance indicators (KPIs). These KPIs are financial in nature and are
aligned to the profitability of the Emeco Group.
The combination of KPI elements varies amongst executives, however, as a fundamental principle; KPIs are set for each executive’s STI plan on the
basis they are aligned with the strategic objectives of the Emeco Group. KPIs therefore generally comprise elements based on the performance
of the Emeco Group or a business unit within the Group, with the measurement of KPIs being objectively determined on the basis of financial
information.
Whilst the maximum percentage STI grant to key executives varies, no executive other than the Managing Director, the Executive Director,
Corporate Strategy and Business Development and the Chief Financial Officer is entitled to an STI grant which equals or exceeds 50 percent of the
recipient’s annual salary. The majority of key executives are entitled to a maximum STI grant of 40 percent of annual salary.
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FY09 STI grants
In accordance with the terms of their respective STI plans, Mr Freedman and Mr Adair did not receive any proportion of their respective STI bonus
entitlements for FY09 because actual earnings per share did not exceed the required earnings per share target. Details of the STI plans for
Mr Freedman and Mr Adair are set out in the section of this report headed ‘Service Contracts’.
Details of the vesting profile of the STI cash grants awarded to key executives in respect of FY09 are set out below:
Table 4 – Key executive STI vesting information in respect of FY09
Nature of STI
compensation
Cash
Cash
Cash
Cash
Cash
Cash
Cash
Cash
Cash
Cash
Cash
Cash
Grant date
% of bonus awarded % of bonus forfeited
16 October 2008
10 October 2008
10 October 2008
10 October 2008
10 October 2008
10 October 2008
10 October 2008
10 October 2008
10 October 2008
10 October 2008
10 October 2008
10 October 2008
0%
0%
0%
0%
75%
0%
0%
30%
0%
0%
0%
0%
100%
100%
100%
100%
25%
100%
100%
70%
100%
100%
100%
100%
Mr L Freedman
Mr R Adair
Mr H Christie-Johnston
Mr S Gobby
Mr A Halls
Mr M Kirkpatrick
Mr C Moseley
Mr I Testrow
Mr D Tilbrook
Mr M Turner
Mr G Graham
Mr M Bourke
Notes:
(A) Amounts included in remuneration for FY09 represent the amounts that vested in the year based on the achievement of KPIs. No amounts vest
in future financial years in respect of the bonus scheme for FY09.
(B) Amounts forfeited are due to the KPIs not being met in relation to FY09.
LTI remuneration
Performance Shares and Performance Rights
Emeco has established an LTI plan to apply to Emeco’s senior managers (which includes key management personnel). The plan provides Emeco’s
senior managers with an ongoing incentive to achieve the long term objectives of the Emeco Group.
Grants under the 2009 LTI plan, which applied to key executives other than Mr Freedman and Mr Adair, have the following key terms and conditions,
none of which have been altered since grants were made under the plan in December 2008:
•
Unvested fully paid Emeco performance shares were granted to individual Australian-based executives, with the number of shares granted being
determined by reference to the seniority of the executive and the value of the share grant as a percentage of the executive’s salary. Performance
shares were granted at no cost to the recipient and at a nil exercise price; they vest three years after issue if the performance condition described
below is met.
•
Emeco participants in the LTI plan who were working outside Australia were issued performance rights on substantially identical terms as
the recipients of performance shares. Each performance right provides the recipient with the right to receive one fully paid Emeco share if the
relevant performance hurdle is met. Performance rights are issued to Emeco’s offshore executives instead of performance shares in order to
reduce the complexity of the compliance issues associated with the issue of Emeco shares in the relevant foreign jurisdictions.
•
The performance condition for the vesting of performance shares and the exercise of performance rights is a performance hurdle based on
relative total shareholder return (TSR). Emeco’s TSR during the vesting period will be measured against a peer group consisting of a group of
12 companies that are considered direct peers to Emeco and in addition companies in the S&P/ASX Small Industrials index (excluding banks,
insurance companies, property trusts/companies and investment property trusts/companies and other stapled securities). The peer group
currently comprises a total of 98 companies (this number may change as a result of takeovers, mergers etc) (Peer Group). TSR for Emeco and
each company in the Peer Group is calculated by reference to share price growth, dividends and capital returns.
•
Three years after the LTI grants, TSR for all companies including Emeco will be measured and ranked. Performance shares will only vest and
performance rights will only be exercisable if a threshold TSR performance is achieved in comparison with the Peer Group TSR. There is a
maximum and minimum vesting range and vesting occurs as follows:
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(a)
If Emeco’s TSR is less than the TSR of 50 percent of the companies of the Peer Group then no performance shares will vest.
(b)
If Emeco’s TSR is equal to the TSR of 50.1 percent of the companies of the Peer Group then 50 percent of the performance shares will vest.
(c)
If Emeco’s TSR is equal to the TSR of 75 percent of the companies of the Peer Group then 100 percent of the performance shares will vest.
(d)
If Emeco’s TSR is equal to the TSR of between 50 percent and 75 percent of the companies of the Peer Group then an extra two percent of
the performance shares granted vest for each percentile increase in Emeco’s TSR above the 50th percentile.
•
Performance shares that have not vested after the end of the performance period will be bought back or transferred to a nominee of the Company.
Performance rights which do not become exercisable will lapse.
•
Performance shares which have vested must be transferred into the name of the participant within two years of vesting. Performance Rights
lapse five years after the date of grant.
Options
A separate LTI plan (Options Plan) is in place for Mr Freedman and Mr Adair. On 4 August 2006, following the successful completion of Emeco’s initial
public offering (IPO), 4,800,000 options were issued to Mr Freedman and 1,600,000 options were issued to Mr Adair under the Company’s Employee
Incentive Plan.
Each option granted to Mr Freedman and Mr Adair (Option) was provided at no cost and entitled the holder to subscribe for an ordinary Emeco share at
a price of $1.925 (Exercise Price), which is 2.5 cents above the IPO issue price. The fair value of each Option at grant date was 19.43 cents. The Options
issued to Mr Freedman and Mr Adair expire five years after their date of issue.
The Options Plan provides for the vesting of the Options in three equal tranches, subject to the following vesting conditions:
•
for FY07, 1/3 of the Options were to vest on the date of release of final audited results for Emeco for that year, provided that Emeco Holdings
achieved actual earnings per share equal to or greater than the Prospectus forecast earnings per share for FY07. All of these Options vested on
the date of release of Emeco’s FY07 results because the actual earnings per share for FY07 of 9.3 cents met the required performance target.
However, neither Mr Freedman nor Mr Adair have exercised these vested Options because the Exercise Price has been greater than the market
price of Emeco shares since these Options vested;
•
for FY08, 1/3 of the Options were to vest on the date that final audited results for Emeco for that year were released, provided that Emeco Holdings
achieved actual earnings per share equal to or greater than 110 percent of the Prospectus forecast earnings per share for FY07. None of these
Options have vested because the actual earnings per share for FY08 of 10.7 cents did not meet the required performance target; and
•
for FY09, 1/3 of the Options were to vest on the date that final audited results for Emeco for the year are released, provided that Emeco Holdings
achieves actual earnings per share equal to or greater than 121 percent of the Prospectus forecast earnings per share for FY07. None of these
Options will vest because the actual earnings per share for FY09 of 2.0 cents did not meet the required performance target.
Mr Freedman’s Options vest only if he holds the position of Managing Director of the Company at the time of vesting. Mr Adair’s Options vest only
if he is an employee of the Company at the time of vesting or he is subject to a deemed termination, i.e. the Company materially and substantially
changes his duties beyond the duties ordinarily performed by him, other than with his agreement, or the Company is removed from the official list of
the ASX.
All of the Options granted to Mr Freedman and Mr Adair which were subject to a vesting condition in respect of Emeco’s FY09 financial performance
lapsed as a result of Emeco not meeting the earnings per share performance target set out above.
Prohibition of hedging LTI grants
On 25 August 2008, Emeco’s Board of Directors resolved to amend Emeco’s share trading policy to prohibit Directors and other officers of the
Company from entering into transactions intended to hedge their exposure to Emeco securities which have been issued to the officer as part of the
officer’s remuneration.
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Details of remuneration
Details of the elements comprising the remuneration of the Emeco Group’s key management personnel, including each Director and each of the
five named Emeco Group executives who received the highest remuneration in FY09 are set out in table 5. Table 5 does not include the following
components of compensation because they were not provided to key executives during FY09: short term cash profit-sharing bonuses, payments
made to a person before the person started to hold a position, long term incentives distributed in cash, post employment benefits other than
superannuation and share based payments other than shares and units. Table 6 provides comparative information in relation to the remuneration
of the Emeco Group’s key executives for the prior financial year.
Table 5 - Directors’ and executive officers’ remuneration FY09 (Company and Consolidated)
Short-term benefits
Post
employment
benefits
Other
long term
benefits
Termination
benefits
Share based
payments
Total
Proportion of
remuneration
performance
related
Salary &
Fees
$
STI cash
bonuses
$
Non-
monetary
benefits
$
Superannuation
benefits
$
$
$
Shares
$
Options (*)
$
$
%
Non-Executive
Directors
Alec Brennan
181,885
Robert Bishop (A)
2,160
John Cahill (B)
81,307
Greg Minton (C)
108,099
Paul McCullagh (D)
38,482
Peter Johnston
104,130
Executive Directors
Laurie Freedman
Managing Director
1,001,299
Robin Adair
Executive Director
Corporate Strategy
& Development
518,269
TOTAL ALL
DIRECTORS
2,035,631
-
-
-
-
-
-
-
-
-
8,710
16,369
-
-
-
-
-
194
7,318
9,729
3,463
6,658
56,070
99,470
20,997
51,827
85,777
195,028
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
206,964
2,354
88,625
117,828
41,945
110,788
-
(221,500)
935,339
-
(73,834)
517,259
-
(295,334)
2,021,102
(A) Mr Bishop was appointed a Director on 22 June 2009.
(B) Mr Cahill was appointed a Director on 15 September 2008.
(C) Mr Minton resigned on 25 June 2009.
(D) Mr McCullagh resigned on 12 November 2008.
(*) Included in share based payments are the reversed amounts recognised as remuneration in prior years as a result of option entitlements
forfeited during the year. The options were forfeited as a result of performance hurdles not being achieved.
-
-
-
-
-
-
-
-
-
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Table 5 - Directors’ and Executive officers’ remuneration FY09 (Company and Consolidated) – Cont.
Short-term benefits
Post
employment
benefits
Other
long
term
benefits
Termination
benefits
Share based
payments
Total
Proportion of
remuneration
performance
related
Salary &
Fees
$
STI cash
bonuses
(E)
$
Non-
monetary
benefits
$
Superannuation
benefits
$
$
$
LTIP
(*)
$
MISP
(*)
$
$
%
Executives
M Bourke
President
Emeco Canada (F)
H Christie-Johnston
General Manager
Emeco Sales
465,791
261,538
S Gobby
Chief Financial Officer
381,923
311,714
-
-
-
-
22,388
41,921
15,208
23,538
817
34,373
45,646
8,656
G Graham
Managing Director
Emeco Europe (G)
A Halls
General Manager
Northern Region (H)
M Kirkpatrick
General Manager
Corporate Services (I)
C Moseley
President
Emeco USA (J)
I Testrow
President
Emeco Canada (K)
D Tilbrook
Executive General
Manager
Western Region
M Turner
General Manager
Global Asset Group (L)
TOTAL ALL
EXECUTIVES
TOTAL ALL
54,519
33,750
2,637
4,907
288,692
330,162
-
-
1,220
25,972
2,424
9,014
345,056
36,000
56,448
31,055
449,538
318,269
-
-
-
40,458
15,598
28,644
3,207,202
69,750
162,386
5,242,833
69,750
248,163
248,538
443,566
-
-
-
-
-
-
-
-
-
-
-
-
-
(21,750)
(55,063)
453,287
-
-
-
27,500
14,260
342,044
12.2%
67,911
-
485,024
14.0%
-
(21,750)
(6,361)
337,905
-
-
-
-
-
-
2,250
-
98,063
36.7%
39,500
4,435
359,819
12.2%
33,088
-
374,688
8.8%
59,000
22,213
549,772
21.3%
67,000
-
556,996
12.0%
-
61,500
-
424,011
14.5%
- 314,249
(20,516) 3,981,609
- 314,249 (315,850) 6,002,711
(E) The short term incentive bonus is for performance during FY09. The amount awarded to each executive was finally determined on 17 August
2009 after completion of performance reviews.
(F) Mr Bourke resigned from his employment with Emeco Canada Ltd on 9 April 2009. His remuneration has been converted to Australian dollars
from Canadian dollars on the basis of an AUD/CAD exchange rate of $0.8563.
(G) Mr Graham resigned from his employment with Emeco Europe on 31 January 2009. His remuneration has been converted to Australian dollars
from Euros on the basis of an AUD/EUR exchange rate of $0.5455.
(H) Mr Halls was appointed to the position of General Manager Northern Region with effect from 1 April 2009.
(I) Mr Kirkpatrick was appointed to the position of General Manager Corporate Services with effect from 2 September 2008. He became a member
of the Emeco senior leadership team from 1 July 2008.
(J) Mr Moseley’s remuneration has been converted to Australian dollars on the basis of an AUD/USD exchange rate of $0.7488.
(K) Mr Testrow was appointed to the position of President – Emeco Canada with effect from 1 April 2009. Prior to this appointment, Mr Testrow
4 0
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
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was the General Manager Northern Region during the preceding portion of FY09. His remuneration from 1 April 2009 – 30 June 2009 has been
converted to Australian dollars from Canadian dollars on the basis of an AUD/CAD exchange rate of $0.8857.
(L) Mr Turner was appointed to the position of General Manager, Global Asset Group with effect from 1 July 2008.
(*) Included in share based payments is the reversal of amounts recognised as remuneration in prior years as a result of MISP and LTIP
entitlements being forfeited during the year. The MISP and LTIP entitlements were forfeited as a result of service vesting requirements not
being achieved.
Table 6 - Directors’ and Executive officers’ remuneration FY08 (Company and Consolidated)
Short-term benefits
Post
employment
benefits
Other
long
term
benefits
Termination
benefits
Share based
payments
Total
Proportion of
remuneration
performance
related
Salary &
Fees
$
STI cash
bonuses
$
Non-
monetary
benefits
$
Superannuation
benefits
$
$
$
Shares
$
Options (*)
$
$
%
Non - Executive
Directors
Alec Brennan
Greg Minton
Paul McCullagh
Stuart Fitton (A)
Peter Johnston
175,494
105,743
101,076
13,288
98,743
Executive Directors
Laurie Freedman
Managing Director
Robin Adair
Executive Director
Corporate Strategy &
Development (B)
TOTAL ALL
DIRECTORS
925,062
486,538
1,905,944
-
-
-
-
-
-
-
-
-
-
-
-
-
15,795
9,517
9,097
1,196
8,887
19,767
96,508
28,006
48,654
47,773
189,654
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
191,289
115,260
110,173
14,484
107,630
-
-
-
-
-
3,495
1,044,832
0.3%
1,165
564,363
0.2%
4,660
2,148,031
(A) Mr Fitton resigned on 17 August 2007.
(B) Mr Adair was appointed to the position of Executive Director Corporate Strategy & Development on 1 November 2007, having previously been
Chief Financial Officer for the Emeco Group.
(*) Included in share based payments are the reversed amounts recognised as remuneration in prior years as a result of option entitlements
forfeited during the year. The options were forfeited as a result of performance hurdles not being achieved.
4 1
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
D I R E C T O R S ’ R E P O R T F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
Table 6 Directors’ and ‘Executive officers’ remuneration FY08 (Company and Consolidated) – Cont.
Short-term benefits
Post
employment
benefits
Other
long term
benefits
Termination
benefits
Share based
payments
Total
Proportion of
remuneration
performance
related
Salary &
Fees
$
STI cash
bonuses (C)
$
Non-
monetary
benefits
$
Superannuation
benefits
$
$
$
LTIP
$
MISP
$
$
%
G Graham
Managing Director
Emeco Europe (H)
284,807
Executives
M Bourke
President
Emeco Canada (D)
A Carr
General Manager
Parts,
Maintenance &
Plant (E)
H Christie-
Johnston
General Manager
Emeco Sales (F)
S Gobby
Chief Financial
Officer (G)
C Moseley
President
Emeco USA (I)
T Sauvarin
General Manager
Emeco Sales (J)
I Testrow
General Manager
Northern Region
(K)
D Tilbrook
Executive General
Manager Western
Region (L)
M Turner
General Manager
Global
Procurement
TOTAL ALL
EXECUTIVES
299,938
-
142,784
24,119
290,308
10,000
15,434
26,128
192,308
80,000
10,471
17,308
113,538
236,713
24,000
-
-
-
-
82
10,218
119,734
11,846
12,630
6,699
-
4,800
231,423
20,000
65,446
20,828
412,615
30,000
14,574
37,135
294,615
20,000
9,596
26,515
2,380,265
160,000
390,751
185,596
TOTAL ALL
4,286,209
160,000
438,524
375,250
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
21,750
41,077
529,668
11.9%
21,750
42,585
406,205
18.3%
-
4,219
304,306
27.7%
9,095
-
132,933
6.8%
21,750
16,432
454,569
8.4%
-
-
-
-
256,042
28,800
-
-
21,750
25,551
384,998
17.5%
21,750
21,750
-
-
516,074
10.0%
372,476
11.2%
139,595
129,864 3,386,071
139,595
134,524 5,534,102
(C) The short term incentive bonus is for performance during FY08. The amount awarded to each executive was finally determined on 8 August
2008 after completion of performance reviews.
(D) Mr Bourke’s remuneration has been converted to Australian dollars from Canadian dollars on the basis of an AUD/CAD exchange rate of
$0.9045.
(E) Mr Carr was appointed to a position within the procurement management group as from 1 July 2008 and ceased to be a member of the Emeco
senior leadership team from that date.
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(F) Mr Christie-Johnston commenced employment with Emeco as General Manager, Emeco Sales on 30 July 2007.
(G) Mr Gobby commenced employment as Emeco’s Chief Financial Officer on 4 March 2008.
(H) Mr Graham was appointed Managing Director of Emeco Europe on 12 August 2007. Mr Graham’s remuneration has been converted to Australian
dollars from Euros on the basis of an AUD/EUR exchange rate of $0.6098.
(I) Mr Moseley acquired executive responsibility for the financial and operational performance of Emeco Equipment (USA) LLC as from 1 July 2007.
Mr Moseley’s remuneration has been converted to Australian dollars on the basis of an AUD/USD exchange rate of $0.8956.
(J) Mr Sauvarin was appointed to a position within the procurement management group as from 30 July 2007 and ceased to be a member of the
Emeco senior leadership team from that date.
(K) Mr Testrow was appointed to the position of General Manager Northern Region with effect from 1 March 2008. He was subsequently appointed
to the position of President Emeco Canada on 1 April 2009.
(L) Mr Tilbrook was appointed Executive General Manager Western Region with effect from 1 March 2008. Prior to that time he was General
Manager Australian Rental.
Equity instruments
MISP
During FY09, the Company recognised share based payments to Messrs Bourke, Christie-Johnston, Testrow, Graham and Kirkpatrick (MISP
Participants) under the Company’s Management Incentive Share Plan (MISP). Details of the share issue made to them under the MISP are set out
below:
Table 7 – MISP grants to key executives
Number of shares issued under the MISP
600,000
500,000
300,000
200,000 on 18/08/2005
(Tranche 1)
100,000 on 12/06/2006
(Tranche 2)
Michael
Bourke
Hamish
Christie-Johnston
Ian Testrow
Greg Graham
Michael
Kirkpatrick
150,000
Issue price of the MISP shares
$0.92
$0.74
$1.155
Date of grant
12 June 2006
14 March 2008
12 June 2006
$0.61 (Tranche 1)
$1.155 (Tranche 2)
$0.61
18 August 2005
(Tranche 1)
12 June 2006
(Tranche 2)
18 August 2005
Amount of Company loan in respect of MISP shares
outstanding at reporting date
-
$347,500
$316,500
-
$76,250
Highest amount of indebtedness during the period
$519,000
$370,000
$330,000
$221,000
$83,250
Fair value recognised as remuneration during the
year
$2,235
$14,260
$22,213
$3,329
$4,435
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E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
D I R E C T O R S ’ R E P O R T F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
Key terms and conditions of the issue of shares to the MISP Participants under the MISP are as follows:
•
In accordance with the terms of the MISP the Company provided each MISP Participant with an interest-free, limited recourse loan (
Loan) to
enable them to subscribe for the MISP shares.
•
The shares vest over a five year period with the first 6.25 percent of the shares vesting two years after the issue date. The shares then vest on an
annual basis until all of the shares have vested on the fifth anniversary of their issue.
•
If a MISP Participant’s employment with the Emeco Group is terminated before all of their MISP shares vest, then in relation to those shares
which have not vested, the Company is required to buy them back, cancel them or transfer them to a nominee at a price equal to the Loan amount
outstanding in respect of them and to set off the payment against the Loan amount owed to the Company. In relation to those shares which have
vested, the Company must buy them back or transfer them to a nominee of the Board and pay to the MISP Participant a purchase price equal to
their market value, subject to the Company setting off the Loan amount outstanding in respect of the vested shares.
•
Subject to the approval of the Board, the Loan can be repaid at any time but must be repaid by the tenth anniversary of the commencement date
of the MISP.
•
Any dividends or capital distributions which may become payable in respect of the MISP shares may be applied by the Company in reducing the
amount of the loan.
The share issues under the MISP to each MISP Participant, and the time based vesting conditions in respect of the shares, are not dependent on the
satisfaction of a performance condition because the issue of shares to them and the inclusion of time based vesting conditions in the terms of issue
were intended to provide them with an incentive to remain with the Emeco Group. That is, the terms upon which the shares were issued to the MISP
Participants were intended to operate as a retention incentive arrangement rather than a performance incentive arrangement.
Following their resignations on 9 April 2009 and 31 January 2009 respectively, all of the MISP shares granted to Mr Bourke and Mr Graham were
forfeited because the market value of these MISP shares was less than their issue price at the time of their respective resignations. Following the
forfeiture of the shares, the outstanding loan amount in respect of the shares was forgiven, as required by the MISP rules, and neither Mr Bourke
nor Mr Graham received any payment for their transfer.
LTI
The terms of the LTI Plan are discussed at pages 37 to 38 above.
Grants of Performance Shares made to key management personnel under the Company’s LTI plan (LTI Plan) in FY08 and FY09 are set out in table 8.
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E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
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Table 8 – FY08 and FY09 LTI Performance Share grants to key executives
Number granted during
FY08 & FY09
Grant Date
Fair value per
Performance Share (*)
Number of
Performance Shares
vesting during FY08 (A)
& FY09 (B)
Mr H Christie-Johnston
Mr S Gobby
Mr A Halls
Mr M Kirkpatrick
Mr I Testrow
Mr D Tilbrook
Mr M Turner
FY09
FY08
FY09
FY08
FY09
FY08
FY09
FY08
FY09
FY08
FY09
FY08
FY09
FY08
495,495
-
731,982
150,000
162,162
-
450,450
-
540,541
100,000
684,685
100,000
585,586
100,000
16 December 2008
-
16 December 2008
17 March 2008
16 December 2008
-
16 December 2008
-
16 December 2008
15 October 2007
16 December 2008
15 October 2007
16 December 2008
15 October 2007
$0.222
-
$0.222
$0.47
$0.222
-
$0.222
-
$0.222
$0.87
$0.222
$0.87
$0.222
$0.87
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(A) For Performance Shares granted in FY08 the earliest vesting date is 15 October 2010.
(B) For Performance Shares granted in FY09 the earliest vesting date is 30 September 2011.
(*) The fair value of the performance shares was determined using a Monte Carlo share price simulation model, and is allocated to each reporting
period evenly over the period from grant date to costing date. The value disclosed in the directors and officers’ remuneration is the portion of
the fair value of the performance shares recognised in this reporting period.
Grants of Performance Rights made to key management personnel under the Company’s LTI plan in FY08 and FY09 are set out in table 9.
Table 9 – FY08 and FY09 LTI Performance Rights grants to key executives
Number granted during
FY08 & FY09
Grant Date
Fair value per
Performance Right (*)
Number of
Performance Rights
vesting during FY08 (A)
& FY09 (B)
Mr M Bourke
Mr G Graham
Mr C Moseley
FY09
FY08
FY09
FY08
FY09
FY08
-
100,000
-
100,000
827,206
-
-
15 October 2007
-
15 October 2007
22 December 2008
-
-
$0.87
-
$0.87
$0.16
-
-
-
-
-
-
-
(A) For Performance Rights granted in FY08 the earliest vesting date is 15 October 2010. The Performance Rights granted to Mr Bourke and Mr
Graham in FY08 were forfeited following their resignations in April 2009 and January 2009 respectively.
(B) For Performance Rights granted in FY09 the earliest vesting date is 30 September 2011.
(*) The fair value of the performance rights was determined using a Monte Carlo share price simulation model, and is allocated to each reporting
period evenly over the period from grant date to costing date. The value disclosed in the Directors’ and officers’ remuneration is the portion of
the fair value of the performance rights recognised in this reporting period.
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E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
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Options
The terms of the Options Plan are discussed at page 38 above of this report.
The percentage of Mr Adair’s and Mr Freedman’s remuneration in FY09 that consists of Options is 0 percent for each of them.
Details of the movement in the number of options held, directly, indirectly or beneficially, by each key management person during FY09, including their
related parties, are set out in the following table:
Table 10 – LTI Options grants to key executives
Held at
1 July 2008
Granted as
Compensation
Exercised
Other
Changes (*)
Held at 30
June 2009 (**)
Vested during
the year
(1,600,000)
(533,333)
3,200,000
1,066,667
-
-
Vested and
exercisable at
30 June 2009
1,600,000
533,333
Forfeited (***)
$
(180,800)
(60,267)
2009
Directors &
Executives
L C Freedman
R L C Adair
2008
Directors &
Executives
L C Freedman
R L C Adair
4,800,000
1,600,000
-
-
Held at
1 July 2007
Granted as
Compensation
Exercised
4,800,000
1,600,000
-
-
-
-
-
-
Other
Changes (*)
Held at 30
June 2008
Vested during
the year
-
-
4,800,000
1,600,000
-
-
Vested and
exercisable at
30 June 2008
1,600,000
533,333
Forfeited (***)
$
-
-
(*) Other changes represent Options that were forfeited during the year.
(**) Subsequent to 30 June 2009 with effect from 26 August 2009, Mr Freedman will forfeit 1,600,000 options and Mr Adair will forfeit 533,333
options. These forfeitures will occur because under the terms of the Options Plan, the Company’s earnings per share target for FY09 was not
achieved. For further details, see page 38 of this report.
(***) The value of the forfeited options during the year represents the benefit forgone and is calculated at the date the option lapsed using a
binomial option-pricing model assuming the performance criteria had been achieved.
Service contracts
Except as outlined below, each of the key executives named in table 5 are employed pursuant to contracts which provide for an indefinite term and
which are terminable on either party giving six months’ notice or on the payment to the executive of up to six months’ salary in lieu of notice. No
termination payments other than salary in lieu of notice and accrued statutory leave entitlements are payable under these contracts.
Mr Moseley is employed by Emeco Equipment (USA) LLC pursuant to a contract which provides for successive rolling 12 month terms, subject to
either party being able to give six months notice of termination or on the payment by Emeco Equipment (USA) LLC to Mr Moseley of up to six months’
salary in lieu of notice. No termination payments other than salary in lieu of notice and accrued leave entitlements are payable.
Mr Freedman’s contract provided that he was to act as Managing Director of the Group until at least 31 December 2008. However, with effect from
1 October 2008 his contract was amended to provide that he would be employed as Managing Director for a one year term, at the expiry of which
he will be employed on successive one year terms. Under his amended contract, Mr Freedman’s remuneration continued to be structured so that
he received a base salary (exclusive of superannuation and other entitlements outlined in his contract), together with the ability to qualify for a STI
performance bonus in FY09 of up to 100 percent of the base salary and a LTI performance bonus on the terms set out at pages 37 to 38 above. Under
his amended contract the performance criteria for Mr Freedman’s FY09 STI were altered. Previously, growth in net profit after tax (NPAT) was the
sole criterion for determining Mr Freedman’s STI entitlement. Under his amended contract, a combination of NPAT and return on funds employed
hurdles were the determining criteria for FY09. Under the terms of his amended contract, Mr Freedman’s employment could be terminated by
either Mr Freedman or Emeco during the initial one year term upon provision of six months notice of termination. Mr Freedman was required to
advise the Chairman of Emeco between 1 January and 30 January in each year whether he intends to give notice of termination in the next three
months. On 26 June 2009, the Company announced that Mr Freedman had decided to step down from his role as Managing Director at a mutually
convenient time later in 2009 and that he would remain as Managing Director until his successor commences with the Company.
4 6
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
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The contract that was in place for Mr Adair for the duration of FY09 provided that he was to continue his employment with the Group until 30 June
2009. Under this contract, Mr Adair’s remuneration was structured so that he received a base salary (exclusive of superannuation and other
entitlements outlined in his contract), together with the capacity to qualify for a STI performance bonus each year of up to 50 percent of the base
amount and a LTI performance bonus on the terms set out at pages 37 to 38 above. In FY09 Mr Adair’s STI entitlement was calculated by reference
to a combination of NPAT and return on funds employed hurdles. Emeco and Mr Adair agreed to extend his contract for a period of three months
to 30 September 2009 to allow the parties time to negotiate a new contract. At the time of releasing this annual report, those negotiations were
continuing.
Mr Gobby’s contract is for an indefinite term and provides that it is terminable on either party giving six months’ notice or on the payment to him of
up to six months’ salary in lieu of notice. If, however, a change of control of Emeco Holdings Ltd occurs or his duties are materially changed within
certain time periods specified in the contract, then he is entitled to terminate the contract and to be paid a maximum amount of 12 months base
salary and the full amount of his STI bonus. This maximum amount applies if the relevant event occurs within one year of the commencement of his
employment with Emeco and declines to an amount of six months base salary and the full amount of his STI bonus after the second anniversary of
his employment with Emeco.
Non-Executive Directors
A maximum amount of $1,200,000 pa is currently prescribed in the Company’s constitution as the total aggregate remuneration available to Non-
Executive Directors.
The remuneration of all of the Non-Executive Directors other than Mr Brennan comprises a cash director’s fee of $104,500 pa, inclusive of
superannuation contributions. As Chairman, Mr Brennan is entitled to an annual fee of $182,875, inclusive of superannuation contributions. An
additional annual fee of $7,838 is paid to any Director who is a member of a Board Committee; this fee is increased to $10,450 for a Director who
chairs a Committee.
Remuneration and the Company’s performance
The Directors consider that the remuneration policies of the Company effectively align the interests of Emeco’s senior executives with the interests
of the Company and its shareholders. This has been achieved by ensuring that a significant proportion of the senior executive’s remuneration is
‘at risk’ in the form of STI and LTI components, with STI entitlements being linked to financial measures of the Company’s performance and LTI
entitlements being linked to measures of total shareholder return.
The KPIs used to determine STI entitlements have been devised to ensure that key management personnel are rewarded for robust earnings
performance. Conversely, where the Company’s earnings performance does not meet KPI thresholds, key management personnel forfeit their
entitlement to the STI component of their remuneration.
The extent to which Emeco has set financial performance KPIs which are genuinely challenging - and which entail that STI entitlements are
genuinely at risk - is highlighted by the fact that only two senior executives received an STI payment in FY09. Furthermore, six of eleven senior
executives received no STI payment in FY08 and only one executive received 100 percent of his STI entitlement in FY08.
Based on the pro forma historical information set out in section 7 of the Emeco Prospectus dated 3 July 2006, and the consolidated results set out
in the Company’s financial statements for FY06 through to FY09, the Emeco Group has achieved a compound annual growth rate in operating EBITA
of 14.4 percent for the period from FY05 to FY09. However, there have been two consecutive years of decline in Company earnings in FY08 and FY09.
As a result of these declines, and as noted above, the STI entitlements of Emeco’s senior executives in both years have been significantly reduced.
The Company’s share price has declined significantly since the IPO in 2006. However, in that period the Company has maintained its dividend
policy of paying shareholders between 35 percent and 45 percent of the Company’s profit. The primary means available to the Company to grow
shareholder wealth, whether by way of dividend distributions or increases in the Company’s share price, is to strive to increase earnings. In this
regard, the Company will maintain remuneration policies and practices which reward strong financial performance and align the interests of
management with the interests of shareholders.
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E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
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Indemnification and insurance of Directors, Officers and Auditors
The Company has entered into a deed of access, indemnity and insurance with each of its current and former Directors, the Chief Financial Officer
and the Company Secretary. Under the terms of the deed, the Company indemnifies the officer or former officer, to the extent permitted by law, for
liabilities incurred as an officer of the Company. The deed provides that the Company must advance the officer reasonable costs incurred by the
officer in defending certain proceedings or appearing before an inquiry or hearing of a government agency.
Since the end of the previous financial year, the Company has paid premiums in respect of contracts insuring the current and former Directors and
officers of the Emeco Group, including senior executives, against liabilities incurred by such a Director, officer or executive to the extent permitted
by the Corporations Act 2001. The contracts of insurance prohibit disclosure of the nature of the liability cover and the amount of the premium.
The Emeco Group has not indemnified its auditors, KPMG.
Non-audit services
During the year, KPMG, the Company’s auditor, has performed certain other services in addition to their statutory duties.
The Board has considered the non-audit services provided during the year by the auditor and is satisfied that the provision of those non-audit
services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act
2001 for the following reasons:
•
•
all non-audit services were subject to the Corporate governance procedures adopted by the Company;
the non audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics
for Professional Accountants, as they did not involve reviewing or auditing the auditors own work, acting in a management or decision making
capacity for the Company, acting as an advocate for the Company or jointly sharing the risks and rewards.
A copy of the Auditor’s Independence Declaration as required under Section 307C of the Corporation Act 2001 is included in the Directors’ Report.
Details of fees paid to the Company’s auditors for non audit services are found in Note 9 of the financial report.
Rounding
The amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (where rounding is applicable) under the
option available to the Company under ASIC Class Order 98/100 dated 10 July 1998. The Company is an entity to which the Class Order applies.
Signed in accordance with a resolution of the Directors.
Laurence Freedman
Managing Director
Dated at Perth, 25th day of August 2009.
4 8
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
Lead Auditor’s Independence Declaration
under Section 307C of the Corporations Act 2001
To: the Directors of Emeco Holdings Limited
I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 June 2009 there have been:
(i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and
(ii) no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
R Gambitta
Partner
Perth
25 August 2009
KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,
a Swiss cooperative.
4 9
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
I N C O M E S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
Income Statements
Revenue from rental income
Revenue from the sale of machines and parts
Revenue from maintenance services
Changes in machinery and parts inventory
Impairment of tangible assets
Repairs and maintenance
Employee expenses
Hired in equipment and labour
Gross profit
Other income
European restructuring costs
Other expense
EBITDA(1)
Impairment of goodwill
Depreciation expense
Amortisation expense
EBIT(2)
Financial income
Financial expenses
Profit before income tax expense
Income tax (expense)/benefit
Profit for the period
Attributed to:
Equity holders of the parent
Earnings per share:
Note
18, 21
7
19
8
8
8
8
Consolidated
2009
$’000
341,857
137,681
48,705
528,243
(131,145)
(19,468)
(104,121)
(49,132)
(1,851)
222,526
4,597
(1,990)
(39,864)
185,269
(12,567)
(104,618)
(338)
67,746
1,279
(27,259)
41,766
2008 (3)
$’000
320,478
255,564
41,898
617,940
(231,091)
-
(91,440)
(46,854)
(5,798)
242,757
10,169
-
(39,473)
213,453
-
(93,113)
(1,117)
119,223
1,624
(25,169)
95,678
The Company
2009
$’000
2008
$’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
30,700
-
(1,831)
28,869
-
-
-
28,869
-
-
28,869
33,600
-
(1,193)
32,407
-
-
-
32,407
-
-
32,407
10(c)
(28,497)
13,269
(28,149)
67,529
570
29,439
241
32,648
13,269
67,529
29,439
32,648
2009
$
2008
$
Basic earnings per share from continuing operations
Diluted earnings per share from continuing operations
35
35
0.021
0.021
0.107
0.107
(1) EBITDA - Earnings before interest expense, tax, depreciation and amortisation
(2) EBIT - Earnings before interest expense and tax.
(3) Comparatives have been restated (refer to note 5).
The income statements are to be read in conjunction with the notes to and forming part of the financial statements set out on pages 54 to 110.
5 0
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
B A L A N C E S H E E T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
Balance Sheets
Current Assets
Cash assets
Trade and other receivables
Inventories
Prepayments
Current tax asset
Total current assets
Non-current assets
Trade and other receivables
Intangible assets
Investments
Property, plant and equipment
Deferred tax assets
Total non-current assets
Total assets
Current Liabilities
Trade and other payables
Interest bearing liabilities
Current tax liabilities
Provisions
Total current liabilities
Non-current Liabilities
Interest bearing liabilities
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Reserves
Retained earnings
Total equity
Consolidated
The Company
Note
2009
$’000
2008
$’000
2009
$’000
2008
$’000
15
16
18
17
11
16
19
20
21
12
22
23
11
25
23
12
25
27
27
27
10,422
16,804
128
4
77,691
103,212
25,002
35,623
142,650
187,328
5,310
7,011
-
3,036
-
-
-
-
-
-
236,073
317,391
25,130
35,627
85
576
472,755
511,706
215,826
223,561
-
-
-
-
202,753
162,729
667,969
621,990
-
-
-
3,484
2,820
4,164
883,880
849,611
678,328
678,599
1,119,953 1,167,002
703,458
714,226
57,922
46,172
7,943
6,557
6,030
3,695
-
-
12,519
24,289
12,411
24,231
6,991
4,509
-
-
85,375
81,527
18,441
27,926
330,294
358,066
20,626
24,991
792
682
351,712
383,739
-
-
-
-
-
-
-
-
437,087
465,266
18,441
27,926
682,866
701,736
685,017
686,300
609,470
608,995
685,357
684,882
(20,136)
(16,192)
93,532
108,933
(2,038)
1,698
489
929
682,866
701,736
685,017
686,300
The balance sheets are to be read in conjunction with the notes to and forming part of the financial statements set out on pages 54 to 110.
5 1
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
S T A T E M E N T S O F R E C O G N I S E D I N C O M E A N D E X P E N S E F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
Statements of Recognised Income and Expense
Consolidated
The Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
Effective portion of cash flow hedge recognised directly in equity at
beginning of the year
90
Effective portion of cash flow hedge recognised directly in equity at the end
of the year
(10,536)
915
90
Movement for the year (net of tax)
(10,626)
(825)
Foreign currency translation differences for foreign operations
9,209
(8,836)
Net income recognised directly in equity
Profit for the year
Total recognised income and expense for the year
(1,417)
13,269
11,852
(9,661)
67,529
57,868
-
-
-
-
-
-
-
-
-
-
29,439
29,439
32,648
32,648
Total recognised income and expense for the year attributed to:
Equity holders of the parent
Total recognised income and expense for the year
11,852
11,852
57,868
57,868
29,439
29,439
32,648
32,648
The statements of recognised income and expense are to be read in conjunction with the notes to and forming part of the financial statements set
out on pages 54 to 110.
5 2
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
S T A T E M E N T S O F C A S H F L O W S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
Statements of Cash Flows
Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
Cash generated from operations
Dividends received
Interest received
Interest paid
Income tax paid
Consolidated
The Company
Note
2009
$’000
2008
$’000
2009
$’000
2008
$’000
569,706
599,508
-
-
(335,941)
(407,647)
233,765
191,861
(1,565)
(1,565)
(880)
(880)
-
-
30,700
33,600
1,279
1,624
(26,462)
(25,916)
-
-
-
-
(33,147)
(13,978)
(32,215)
(12,118)
Net cash provided by/(used in) operating activities
30(ii)
175,435
153,591
(3,080)
20,602
Cash flows from investing activities
Proceeds on disposal of non-current assets
21,337
43,753
Payment for controlled entities (net of cash acquired)
31
Investment in subsidiary
-
-
(4,837)
-
(40,025)
(8,872)
Payment for property, plant and equipment
(115,536)
(204,020)
-
-
Net cash used in investing activities
(94,199)
(165,104)
(40,025)
(8,872)
-
-
-
-
Cash flows from financing activities
Proceed from loans
Repayment of borrowings
Loan to controlled entity
Purchase own shares
Payment for debt establishment costs
Finance lease payments
Dividends paid
Net cash provided by financing activities
Net (decrease)/increase in cash held
Cash at the beginning of the period
Effects of exchange rate fluctuations on cash held
127,945
51,628
(170,807)
(11,599)
-
-
-
-
-
-
74,321
17,449
(985)
(2,885)
(985)
(28,207)
(28,194)
(28,207)
(28,194)
(88,204)
1,831
43,229
(11,730)
(2,885)
(4,642)
-
(9,608)
(9,019)
(6,968)
(9,682)
16,804
27,740
586
(1,254)
-
-
-
-
124
4
-
128
-
4
-
4
Cash at the end of the financial period
30(i)
10,422
16,804
The statements of cash flows are to be read in conjunction with the notes to and forming part of the financial statements set out on pages 54 to 110.
5 3
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
Notes to the Financial Statements
1
Reporting entity
Emeco Holdings Limited (the “Company”) is a company domiciled in Australia. The address of the Company’s registered office is Ground Floor,
10 Ord Street, West Perth WA 6005. The consolidated financial statements of the Company as at and for the year ended 30 June 2009 comprise
of the Company and its subsidiaries (together referred to as the “Group”). The Group is primarily involved in the rental, sales and parts of heavy
earthmoving equipment (see note 14).
2
Basis of preparation
(a)
Statement of compliance
The financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards (“AASBs”)
(including Australian Accounting Interpretations) adopted by the Australian Accounting Standards Board (“AASB”) and the Corporations Act 2001.
The consolidated financial report of the Group and the financial report of the Company comply with the International Financial Reporting Standards
(“IFRSs”) and interpretations adopted by the International Accounting Standards Board.
The financial statements were approved by the Board of Directors on 25th August 2009.
(b)
Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis except for the following:
•
•
•
derivative financial instruments are measured at fair value
available-for-sale financial assets are measured at fair value
liabilities for cash-settled share-based payment arrangements are measured at fair value.
The methods used to measure fair values are discussed further in note 4.
(c)
Functional and presentation currency
These consolidated financial statements are presented in Australian dollars, which is the Company’s functional currency and the functional
currency of the majority of the Group.
The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class Order, all financial information
presented in Australian dollars has been rounded to the nearest thousand unless otherwise stated.
(d)
Use of estimates and judgements
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which
the estimate is revised and in any future periods affected.
5 4
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the
most significant effect on the amount recognised in the financial statements are described in the following notes:
•
•
•
•
•
•
Note 6 – valuation of financial instruments
Note 12 – utilisation of tax losses and measurement of deferred tax assets
Note 19 – measurement of the recoverable amounts of cash-generating units containing goodwill
Note 21 – measurement of the recoverable amounts of tangible assets
Note 31 – business combinations
Note 32 – measurement of share based-payments
3
Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have
been applied consistently by Group entities.
(a)
Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an
entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account.
The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date
that control ceases. In the Company’s financial statements, investments in subsidiaries are carried at cost.
(ii) Acquisitions from entities under common control
Business combinations arising from transfers of interests in entities that are under the control of the shareholder that controls the Group are
accounted for as if the acquisition had occurred at the beginning of the earliest comparative period presented or, if later, at the date that common
control was established; for this purpose comparatives are restated. The assets and liabilities acquired are recognised at the carrying amounts
recognised previously in the Group’s controlling shareholder’s consolidated financial statements. The components of equity of the acquired entities
are added to the same components within Group equity. Any cash paid for the acquisition is recognised directly in equity.
(iii) Transactions eliminated on consolidation
Intra-group balances, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated
financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of
impairment.
(b)
Foreign currency
(i) Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of group entities at exchange rates at the dates of the
transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency
at the foreign exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the
functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign
currency translated at the exchange rate at the end of the period. Non-monetary assets and liabilities denominated in foreign currencies that are
measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined.
(ii) Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to Australian
dollars at exchange rates at the reporting date. The income and expenses of foreign operations are translated to Australian dollars at exchange
rates at the dates of the transactions.
5 5
E M E C O 2 0 0 9 A N N U A L R E P O R T
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
3
Significant accounting policies Cont.
Foreign currency differences are recognised directly in equity within the foreign currency translation reserve (“FCTR”). When a foreign operation is
disposed of, in part or in full, the relevant amount in the FCTR is transferred to profit or loss.
(c)
Financial instruments
(i) Non-derivative financial instruments
Non-derivative financial instruments comprise of investments in equity and debt securities, trade and other receivables, cash and cash equivalents,
loans and borrowings, and trade and other payables.
Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly
attributable transaction costs, except as described below. Subsequent to initial recognition non-derivative financial instruments are measured as
described below.
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of
the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
Accounting for finance income and expense is discussed in note 3(n).
(ii) Derivative financial instruments
The Group holds derivative financial instruments to hedge its foreign currency and interest rate risk exposures. Derivatives are recognised
initially at fair value; attributable transaction costs are recognised in profit or loss when incurred. Subsequent to initial recognition, derivatives are
measured at fair value, and changes therein are accounted for as described below.
Cash flow hedges
Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognised directly in equity to the extent that
the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognised in profit or loss.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is
discontinued prospectively. The cumulative gain or loss previously recognised in equity remains there until the forecast transaction occurs. When
the hedged item is a non-financial asset, the amount recognised in equity is transferred to the carrying amount of the asset when it is recognised. In
other cases the amount recognised in equity is transferred to profit or loss in the same period that the hedged item affects profit or loss.
Other non-trading derivatives
When a derivative financial instrument is not held for trading, and is not designated in a qualifying hedge relationship, all changes in its fair value
are recognised immediately in profit or loss.
(iii) Share capital
Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as
a deduction from equity, net of any related income tax benefit.
Purchase of share capital (treasury shares)
When share capital recognised as equity is purchased by the employee share plan trust, the amount of the consideration paid, which includes
directly attributable costs, is net of any tax effects, and is recognised as a deduction from equity. Purchased shares are classified as treasury
shares and are presented as a deduction from total equity. When treasury shares are sold or reissued subsequently, the amount received is
recognised as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to / from retained earnings.
5 6
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
In the Company’s financial statements the transactions of the Company sponsored employee share plan trust are treated as being executed directly
by the Company (as the trust acts as the Company’s agent).
Dividends
Dividends are recognised as a liability in the period in which they are declared.
(d)
Property, plant and equipment
(i) Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.
Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of
materials, direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of
dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the
related equipment is capitalised as part of that equipment.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of
property, plant and equipment.
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the
carrying amount of property, plant and equipment and are recognised net within “other income” in profit or loss.
(ii) Subsequent costs
The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the
future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. Expenditure on major overhauls and
refurbishments of equipment is capitalised in property, plant and equipment as it is incurred, where that expenditure is expected to provide future
economic benefits. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.
(iii) Depreciation
Items of property, plant and equipment, excluding freehold land, are depreciated over their estimated useful lives and are charged to the income
statement. Estimates of remaining useful lives, residual values and the depreciation method are made on a regular basis, with annual re-
assessments for major items.
Assets are depreciated from the date of acquisition or, in respect of internally constructed assets, from the time an asset is completed and held
ready for use. Where subsequent expenditure is capitalised into the asset, the estimated useful life of the total new asset is reassessed and
depreciation charged accordingly.
Depreciation on buildings, leasehold improvements, furniture, fixtures and fittings, office equipment, motor vehicles and sundry plant is calculated
on a straight-line basis. Depreciation on plant and equipment is calculated on machine hours worked over their estimated useful life. The
estimated expected useful lives are as follows:
Leasehold Improvements
Plant and Equipment
15 years
3 – 15 years
Furniture, Fixtures and Fittings
10 years
Office Equipment
Motor Vehicles
Sundry Plant
3 – 10 years
5 years
7 – 10 years
5 7
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
3
Significant accounting policies Cont.
(e)
Intangible assets
(i) Goodwill
Goodwill (negative goodwill) arises on the acquisition of subsidiaries.
Goodwill represents the excess of the cost of the acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and
contingent liabilities of the acquiree. When the excess is negative (negative goodwill), it is recognised immediately in profit or loss.
Acquisitions of minority interests
Goodwill arising on the acquisition of a minority interest in a subsidiary represents the excess of the cost of the additional investment over the
carrying amount of the net assets acquired at the date of exchange.
Subsequent measurement
Goodwill is measured at cost less accumulated impairment losses.
(ii) Other intangible assets
Other intangible assets that are acquired by the Group, which have finite useful lives, are measured at cost less accumulated amortisation and
accumulated impairment losses.
(iii) Amortisation
Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from
the date that they are available for use. The estimated useful lives for the current and comparative periods are as follows:
•
•
contract intangibles
0 – 1 year
software
0 – 3 years
(f)
Leased assets
Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial
recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments.
Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.
Other leases are operating leases and are not recognised on the Group’s balance sheet.
(g)
Inventories
Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first-in first-out principle and
includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of manufactured
inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. Net realisable
value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
Inventory is occasionally sold under a Rental Purchase Option (“RPO”). Under the RPO the purchaser is entitled to a rebate upon exercising the
option. A portion of the income received is used to offset a write down in inventory.
5 8
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
(h) Work in progress
Work in progress consists unbilled amounts to be collected from customers for work performed to date, and is presented as part of trade and other
receivables in the balance sheet.
Progressive capital work to inventory and fixed assets are carried in work in progress accounts within their respective balance sheet classifications
with fixed assets being disclosed as a “capital work in progress” in Note 21. Upon work completion the balance is capitalised.
(i)
Impairment
(i) Financial assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is
considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of
that asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the
present value of the estimated future cash flows discounted at the original effective interest rate.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in
groups that share similar credit risk characteristics.
All impairment losses are recognised in profit or loss.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For
financial assets measured at amortised cost, the reversal is recognised in profit or loss.
(ii) Non-financial assets
The carrying amounts of the Group’s non-financial assets, excluding inventories and deferred tax assets, are reviewed at each reporting date
to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated. For
goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amount is estimated at each reporting
date.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing fair
value, the Group has assessed the amount it could obtain on disposal, less realisation costs. Fair value is calculated with regard to the discounted
post tax cash flows or comparable transactions for similar businesses. For the purpose of impairment testing, assets are grouped together into the
smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups
of assets (the “cash-generating unit”). The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-
generating units that are expected to benefit from the synergies of the combination.
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses
are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount
of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at
each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in
the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does
not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
Goodwill assets were tested for impairment at 30 June 2009 as part of the Group’s process of annually testing goodwill for impairment.
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3
Significant accounting policies Cont.
(j)
Employee benefits
(i) Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no
legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognised as a personnel
expense in profit or loss when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in
future payments is available.
(ii) Other long-term employee benefits
The Group’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for
their service in the current and prior periods plus related on costs; that benefit is discounted to determine its present value, and the fair value of
any related assets is deducted. The discount rate is the yield at the reporting date on Commonwealth Government bonds that have maturity dates
approximating the terms of the Group’s obligations.
(iii) Termination benefits
Termination benefits are recognised as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal, to a
formal detailed plan to terminate employment before the normal retirement date. Termination benefits for voluntary redundancies are recognised
if the Group has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can
be estimated reliably.
(iv) Short-term benefits
Short term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.
A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or
constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
(v) Share based payment transactions
(a) A Management Incentive Share Plan (“MISP”) allows certain consolidated entity employees to acquire shares of the Company. The grant
date fair value of the shares granted to employees is recognised as an employee expense with a corresponding increase in equity, over the
period during which the employees become unconditionally entitled to the shares. The fair value of the MISP granted is measured using a
Black Scholes pricing model, taking into account the terms and conditions upon which the shares were granted. The amount recognised as
an expense is adjusted to reflect the actual number of shares that vest except where forfeiture is only due to shares prices not achieving the
threshold for vesting. Employees have been granted a limited recourse ten year interest free loan in which to acquire the shares. The loan has
not been recognised as the Company only has recourse to the value of the shares.
(b) The share option programme allows certain employees to acquire shares of the Company. The grant date fair value of options granted to
employees is recognised as an employee expense with a corresponding increase in equity, over the period during which the employees become
unconditionally entitled to the options. The fair value of the options granted is measured using an option-pricing model, taking into account the
terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of
share options that vest except where forfeiture is only due to market conditions not being met, ie share prices not achieving the threshold for
vesting.
(c) A Long Term Incentive Plan (“LTIP”) allows certain senior management personnel to receive shares of the Company upon satisfying
performance conditions. Under the LTIP rights or shares granted to each LTIP participant vest to the employee after three years if the
prescribed performance condition is met. The performance condition is a performance hurdle based on relative total shareholder return
(“TSR”). The peer group that the Company’s TSR is measured against consists of 98 Companies and includes 12 Companies that are considered
direct peers to Emeco, in addition to the S&P/ASX Small Industrials (excluding banks, insurance companies, property trust companies and
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investment property trust/companies and other stapled securities). The fair value of the performance rights or shares granted under the LTIP
have been measured using a Monte Carlo simulating model and are expensed evenly over the period from grant date to vesting date.
During the period the trust acquired 6,295,000 shares on market at a fair value of $2,885,000 to be held in trust to satisfy the potential vesting of
shares under the LTIP and MISP. Shares that have been forfeited under the Company’s MISP due to employees under that plan not meeting the
service vesting requirement have also been transferred to the trust. At year end shares held within trust and MISP Escrow account totalled 12.4
million.
(d) Dividends received while satisfying the performance conditions of share issues under the MISP are allocated against the employee outstanding
loan.
(k)
Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and
it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
(i) Restructuring
A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the restructuring either has
commenced or has been announced publicly. Future operating costs are not provided for.
(l)
Revenue
(i) Rental revenue
Revenue from the rental of machines is recognised in profit and loss based on the number of hours the machines operate each month. Contracts
generally have a minimum hour clause which is triggered should the machine operate under these hours during each month. Customers are billed
monthly.
(ii) Goods sold
Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade
discounts and volume rebates. Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer,
recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, and there is no continuing
management involvement with the goods.
(iii) Maintenance services
Revenue from services rendered is recognised in profit or loss in proportion to the stage of completion of the transaction at the reporting date.
(m)
Lease payments
Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received
are recognised as an integral part of the total lease expense, over the term of the lease.
Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability.
The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance
of the liability.
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3
Significant accounting policies Cont.
(n)
Finance income and expenses
Finance income comprises of interest income, dividend income, changes in the fair value of financial assets at fair value through profit or loss, and
foreign currency gains. Interest income is recognised as it accrues, using the effective interest method. Dividend income is recognised on the date
that the Group’s right to receive payment is established, which in the case of quoted securities is the ex-dividend date.
Finance expenses comprises of interest expense on borrowings, foreign currency losses and impairment losses recognised on financial assets. All
borrowing costs are recognised in profit or loss using the effective interest method.
Foreign currency gains and losses are reported on a net basis.
(o)
Income tax
Income tax expense comprises of current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to
items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date,
and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary
differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and
that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries and jointly controlled entities to the
extent that they probably will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the
temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax
assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied
by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net
basis or their tax assets and liabilities will be realised simultaneously.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary
difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that
the related tax benefit will be realised.
Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend is
recognised.
(i) Tax consolidation
The Company and its wholly-owned Australian resident entities have formed a tax-consolidated group with effect from 16 December 2004 and are
therefore taxed as a single entity from that date. The head entity within the tax-consolidated group is Emeco Holdings Limited.
Current tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-
consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using the ‘separate taxpayer
within group’ approach by reference to the carrying amounts of assets and liabilities in the separate financial statements of each entity and the tax
values applying under tax consolidation.
Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses of the subsidiaries are assumed by the head entity in
the tax-consolidated group and are recognised by the Company as amounts payable (receivable) to/(from) other entities in the tax-consolidated
group in conjunction with any tax funding arrangement amounts (refer below). Any difference between these amounts is recognised by the
Company as an equity contribution or distribution.
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N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
The Company recognises deferred tax assets arising from unused tax losses of the tax-consolidated group to the extent that it is probable that
future taxable profits of the tax-consolidated group will be available against which the asset can be utilised.
Any subsequent period adjustments to deferred tax assets arising from unused tax losses as a result of revised assessments of the probability of
recoverability is recognised by the head entity only.
(ii) Nature of tax funding arrangements and tax sharing arrangements
The head entity, in conjunction with other members of the tax-consolidated group, has entered into a tax funding arrangement which sets out the
funding obligations of members of the tax-consolidated group in respect of tax amounts. The tax funding arrangements require payments to/from
the head entity equal to the current tax liability/(asset) assumed by the head entity and any tax-loss deferred tax asset assumed by the head entity,
resulting in the head entity recognising an inter-entity receivable/(payable) equal in amount to the tax liability/(asset) assumed. The inter-entity
receivables/(payables) are at call.
Contributions to fund the current tax liabilities are payable as per the tax funding arrangement and reflect the timing of the head entity’s obligation
to make payments for tax liabilities to the relevant tax authorities.
The head entity in conjunction with other members of the tax-consolidated group, has also entered into a tax sharing agreement. The tax sharing
agreement provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax
payment obligations. No amounts have been recognised in the financial statements in respect of this agreement as payment of any amounts under
the tax sharing agreement is considered remote.
(p)
Goods and services tax
Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not
recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of
the expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included
as a current asset or liability in the balance sheet.
Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing
activities which are recoverable from, or payable to, the ATO are classified as operating cash flows.
(q)
Earnings per share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss
attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted
EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares
outstanding for the effects of all dilutive potential ordinary shares, which comprise convertible notes, management performance shares, and share
options granted to employees.
6 3
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N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
3
Significant accounting policies Cont.
(r)
Segment reporting
A segment is a distinguishable component of the Group that is engaged either in providing related products or services (business segment), or in
providing products or services within a particular economic environment (geographical segment), which is subject to risks and returns that are
different from those of other segments. Segment information is presented in respect of the Group’s business and geographical segments. The
Group’s primary format for segment reporting is based on business segments. The business segments are determined based on the Group’s
management and internal reporting structure.
Inter-segment pricing is determined on an arm’s length basis.
Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.
Unallocated items comprise mainly loans and borrowings and related expenses, corporate assets (primarily the Company’s headquarters) and
head office expenses, and income tax assets and liabilities.
Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than
goodwill.
(s)
New standards and interpretations not yet adopted
The following standards, amendments to standards and interpretations have been identified as those which may impact the entity in the period of
initial application. They are available for early adoption at 30 June 2009, but have not been applied in preparing this financial report.
•
Revised AASB 3
Business Combinations (2008) incorporates the following changes that are likely to be relevant to the Group’s operations:
-
The definition of a business has been broadened, which is likely to result in more acquisitions being treated as business
-
-
-
-
combinations
Contingent consideration will be measured at fair value, with subsequent changes therein recognised in profit or loss
Transaction costs, other than share and debt issue costs, will be expensed as incurred
Any pre-existing interest in the acquiree will be measured at fair value with the gain or loss recognised in profit or loss
Any non-controlling (minority) interest will be measured at either fair value, or at its proportionate interest in the identifiable assets and
liabilities of the acquiree, on a transaction-by-transaction basis.
Revised AASB 3, which becomes mandatory for the Group’s 30 June 2010 financial statements, will be applied prospectively and therefore there
will be no impact on prior periods in the Group’s 2010 consolidated financial statement.
•
Amended AASB 127
Consolidated and Separate Financial Statements (2008) requires accounting for changes in ownership interests by the Group
in a subsidiary, while maintaining control, to be recognised as an equity transaction. When the Group loses control of subsidiary, any interest
retained in the former subsidiary will be measured at fair value with the gain or loss recognised in profit or loss. The amendments to AASB 127,
which become mandatory for the Group’s 30 June 2010 financial statements are not expected to have a significant impact on the consolidated
financial statements.
•
AASB 8
Operating Segments introduces the “management approach” to segment reporting. AASB 8, which becomes mandatory for the Group’s
30 June 2010 financial statements, will require a change in the presentation on and disclosure of segment information based on the internal
reports regularly reviewed by the Group’s executive management order to assess each segment’s performance and to allocate resources to
them. Currently the Group presents segment information in respect of its business and geographical segments (see note 14).
•
Revised AASB 101
Presentation of Financial Statements (2007) introduces the term total comprehensive income, which represents changes
in equity during a period. Total comprehensive income may be presented in either a single statement of comprehensive income (effectively
combining both the income statement and all non-owner changes in equity in a single statement) or, in a income statement and a separate
statement of comprehensive income. Revised AASB 101, which becomes mandatory for the Group’s 30 June 2010 financial statements, is expected
to have a significant impact on the presentation of the consolidated financial statements. The Group plans to provide total comprehensive income
6 4
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N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
in a single statement of comprehensive income for its 2010 consolidated financial statement.
•
AASB 2008-1
Amendments to Australian Accounting Standard - Share-based Payment: Vesting Conditions and Cancellations clarifies the
definition of vesting conditions, introduces the concept of non-vesting conditions, requires non-vesting conditions to be reflected in grant-date
fair value and provides the accounting treatment for non-vesting conditions and cancellations. The amendments to AASB 2 will be mandatory
for the Group’s 30 June 2010 financial statements, with retrospective application. The Group has not yet determined the potential effect of the
amendment.
•
AASB 2008-5
Amendments to Australian Accounting Standards Arising from the Annual Improvements Process and 2008-6 Further Amendments
to Australian Accounting Standards Arising from the Annual Improvements Process affect various AASBs resulting in minor changes for
presentation, disclosure, recognition and measurement purposes. The amendments, which become mandatory for the Group’s 30 June 2010
financial statements, are not expected to have any impact on the financial statements.
•
AASB 2008-8
Amendments to Australian Accounting Standard - Eligible Hedged Items clarifies the effect of using options as hedging instruments
and the circumstances in which inflation risk can be hedged. The amendments become mandatory for the Group’s 30 June 2010 financial
statements, with retrospective application. The Group has not yet determined the potential effect of the amendment.
4
Determination of fair values
A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets
and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. Where applicable,
further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.
(i) Property, plant and equipment
The fair value of property, plant and equipment recognised as a result of a business combination is based on market values. The market value of
property is the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an
arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. The market
value of items of plant, equipment, fixtures and fittings is based on the quoted market prices for similar items.
(ii) Intangible assets
The fair value of contract intangibles acquired in a business combination is based on the discounted estimated net future cash flows that are
expected to arise as a result of the contracts that are in place when the business combination was finalised.
(iii) Inventory
The fair value of inventory acquired in a business combination is determined based on its estimated selling price in the ordinary course of business
less the estimated costs of completion and sale, and a reasonable profit margin based on the effort required to complete and sell the inventory.
(iv) Trade and other receivables
The fair value of trade and other receivables, excluding construction work in progress, is estimated as the present value of future cash flows,
discounted at the market rate of interest at the reporting date.
(v) Derivatives
The fair value of forward exchange contracts is based on the discounted value of the difference between the rate in which the forward exchange
contract was entered and the year end exchange rate.
The fair value of interest rate swaps is based on broker quotes. Those quotes are tested for reasonableness by discounting estimated future cash
flows based on the terms and maturity of each contract and using market interest rates for a similar instrument at the measurement date.
(vi) Non-derivative financial liabilities
Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows,
discounted at the market rate of interest at the reporting date. For finance leases the market rate of interest is determined by reference to similar
lease agreements.
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4
Determination of fair values Cont.
(vii) Share-based payment transactions
The fair value of employee share options, management incentive plan shares and long term incentive plan shares are measured using an option
pricing model. Measurement inputs include share price on issue, exercise price of the instrument, expected volatility, weighted average expected
life of the instruments, market performance conditions, expected dividends and the risk-free interest rate. Service and non-market performance
conditions attached to the transactions are not taken into account in determining fair value.
5
Restatement of prior period comparatives
The prior period income statement has been restated to more accurately reflect income and expenses according to their function. Other expenses
of $22.3 million have been reclassified to costs relating to machinery and parts purchases and consumables and employee expenses of ($18.5
million) and ($3.8 million) respectively. Gross profit also decreased by $22.3 million in line with the retrospective restatement. There was no
underlying change in total EBITDA and EBIT.
6
Financial risk management
Overview
The Company and Group have exposure to the following risks from their use of financial instruments:
•
•
•
credit risk;
liquidity risk; and
market risk.
This note presents information about the Company’s and Group’s exposure to each of the above risks, their objectives, policies and processes for
measuring and managing risk, and the management of capital. Further quantitative disclosures are included throughout this financial report.
The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. The Board has
established the Audit and Risk Management Committee, which is responsible for developing and monitoring risk management policies. The
committee reports regularly to the board of Directors on its activities.
Risk management policies are established to identify and analyse the risks faced by the Company and Group, to set appropriate risk limits and
controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market
conditions and the Company’s and Group’s activities. The Company and Group, through their training and management standards and procedures,
aim to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.
The Audit and Risk Committee oversees how management monitors compliance with the Company’s and Group’s risk management policies and
procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Company and Group.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations,
and arises principally from the Group’s receivables from customers. For the Company it arises from receivables due from subsidiaries.
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Exposure to credit risk
The carrying amount of the Group’s financial assets represents the maximum credit exposure. The Group’s maximum exposure to credit risk at the
reporting date was:
In thousands of AUD
Trade receivables
Other receivables
Cash and cash equivalents
Interest rate swaps used for hedging:
Assets
Consolidated
Carrying amount
2008
2009
Note
16
16
15
16
78,852
7,655
10,422
101,412
7,178
16,804
-
96,929
361
125,755
The Company’s financial assets are all intercompany and does not represent a credit risk.
Trade and other receivables
The Company’s and Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the
Group’s customer base, including the default risk of the industry and country in which customers operate, has less of an influence on credit risk.
The Group sets individual counter party limits and where possible insures its rental income within Australia, Indonesia and Canada and generally
operates on a “cash for keys” policy within its sales business.
Both insured and uninsured debtors are subject to the Group’s credit policy. The Group’s credit policy requires each new customer to be individually
analysed for credit-worthiness before the Group’s standard payment and delivery terms and conditions are offered. The Group’s review includes
external ratings, when available, and in some cases bank references. Purchase limits are established for each customer, which represents the
maximum open amount without requiring approval from the responsible General Manager. In the instance that a customer fails to meet the Group’s
credit-worthiness and the Group is unable to secure credit insurance, future transactions with the customer will only be on a prepayment basis, or
similar security such as a bank guarantee or letter of credit.
Where commercially available the Group aims to insure the majority of rental customers that are not considered either blue chip customers,
subsidiaries of blue chip companies or Government. Blue chip customers are determined as those customers who have a market capitalisation of
greater than $750 million (2008: $1 billion).
The Group has established an allowance for impairment that represents their estimate of incurred losses in respect of trade and other receivables.
The main components of this allowance are a specific loss component that relates to individually significant exposures, and a general loss
component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The specific loss component
is made up of the insurance excess for insured debts that have been classified as doubtful plus a probability weighting to uninsured debts that are
also considered doubtful. The general loss allowance is determined based on historical data of payment statistics for similar financial assets. For
the purpose of allocating the general loss component to the aging trade receivable table, the total general loss component has been allocated to the
not past due.
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6
Financial risk management Cont.
The Group’s maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:
In thousands of AUD
Australia
Asia
North America
Europe
Africa
Consolidated
Carrying amount
2008
2009
45,243
15,785
11,536
4,846
1,442
78,852
66,469
9,965
17,333
5,209
2,436
101,412
The Group’s maximum exposure to credit risk for trade receivables at the reporting date by type of customer was:
In thousands of AUD
Insured
Blue Chip (including subsidiaries)
Government
Other security
Uninsured
Consolidated
Carrying amount
2008
2009
35,181
12,117
185
7,653
23,716
78,852
54,202
15,115
358
-
31,737
101,412
None of the Company’s receivables are past due (2008: nil). The aging of the Group’s trade receivables at the reported date was:
In thousands of AUD
Not past due
Past due 0-30 days
Past due 31-60 days
Past due 61 days
Consolidated
Consolidated
Gross
2009
Impairment
2009
Gross
2008
Impairment
2008
31,614
19,684
7,048
20,506
78,852
1,896
1,006
147
5,767
8,816
52,291
29,943
9,685
9,493
101,412
1,362
1,006
33
2,977
5,378
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
In thousands of AUD
Balance at 1 July
Bad debt expense recognised
Doubtful debt recognised
Balance at 30 June
6 8
Consolidated
2009
2008
5,378
(3,475)
6,913
8,816
1,598
(571)
4,351
5,378
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
Guarantees
Financial guarantees are generally only provided to wholly-owned subsidiaries or when entering into a premise rental agreement. Details of
outstanding guarantees are provided in note 29.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is
to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage to the Group’s reputation.
The Group monitors working capital limits and employs maintenance planning and life cycle costing modules to price its rental contracts. These
processes assist it in monitoring cash flow requirements and optimising cash return in its operations. Typically the Group ensures that it has
sufficient cash on demand to meet expected operational expenses for a period of 60 days, including the servicing of financial obligations; this
excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters.
The Group refinanced its syndicated senior debt facility (“debt facility”) on 15 August 2008. The facility comprises a three year $595 million
revolving senior debt facility and a one year revolving $35 million working capital facility. At year end it had undrawn facilities of $302 million.
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting
agreements.
6 9
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
6
Financial risk management Cont.
Consolidated 30 June 2009
In thousands of AUD
Non-derivative financial liabilities
Secured bank loans
Finance lease liabilities
Trade and other payables (*)
Derivative financial liabilities
Interest rate swaps used
for hedging asset/(liability)
Forward exchange
contracts used for hedging:
Outflow
Inflow
(*) Excludes derivatives (shown separately)
Consolidated 30 June 2008
In thousands of AUD
Non-derivative financial liabilities
Secured bank loans
Finance lease liabilities
Trade and other payables(*)
Derivative financial liabilities
Interest rate swaps used
for hedging asset/(liability)
Forward exchange
contracts used for hedging:
Outflow
Inflow
(*) Excludes derivatives (shown separately)
Company 30 June 2009
In thousands of AUD
Carrying
amount
Contractual
cash flows
6 mths or
less
6-12 mths
1-2 years
2-5 years
More than 5
years
(327,575)
(14,094)
(41,612)
(383,281)
(336,002)
(14,640)
(41,612)
(392,254)
(2,107)
(5,419)
(35,843)
(43,369)
(2,107)
(2,973)
(5,769)
(10,849)
(4,214)
(5,818)
-
(10,032)
(327,574)
(430)
-
(328,004)
(16,310)
(17,010)
(4,061)
(2,848)
(5,697)
(4,404)
27
(36)
(16,319)
(1,437)
1,446
(17,001)
(1,437)
1,446
(4,052)
-
-
(2,848)
-
-
(5,697)
-
-
(4,404)
-
-
-
-
-
-
-
-
Carrying
amount
Contractual
cash flows
6 mths or
less
6-12 mths
1-2 years
2-5 years
More than 5
years
(347,275)
(17,965)
(45,943)
(411,183)
(364,499)
(19,481)
(45,943)
(429,923)
(8,612)
(3,735)
(45,943)
(58,290)
(8,612)
(3,735)
-
(12,347)
(347,275)
(7,400)
-
(354,675)
-
(4,611)
-
(4,611)
361
472
124
124
512
(288)
(229)
-
132
(19,375)
19,145
242
(19,375)
19,145
(106)
-
-
124
-
-
512
-
-
(288)
-
-
-
-
-
-
-
-
Carrying
amount
Contractual
cash flows
6 mths or
less
6-12 mths
1-2 years
2-5 years
More than 5
years
Payables
6,030
(6,030)
(6,030)
-
-
-
-
Company 30 June 2008
In thousands of AUD
Carrying
amount
Contractual
cash flows
6 mths or
less
6-12 mths
1-2 years
2-5 years
More than 5
years
Payables
3,695
(3,695)
(3,695)
-
-
-
-
7 0
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
The following table indicates the periods in which the consolidated cash flows associated with derivatives that are cash flow hedges are expected to
occur.
Consolidated 30 June 2009
Carrying
amount
Expected cash
flows
6 mths or
less
6-12 mths
1-2 years
2-5 years
More than
5 years
In thousands of AUD
Interest rate swaps:
Assets
Liabilities
Forward exchange
contracts:
Assets
Liabilities
(16,310)
-
(17,010)
-
(4,061)
-
(2,848)
-
(5,697)
-
(4,404)
-
27
(36)
(16,319)
(1,437)
1,446
(17,001)
(1,437 )
1,446
(4,052)
-
-
(2,848)
-
-
(5,697)
-
-
(4,404)
-
-
-
-
-
Consolidated 30 June 2008
Carrying
amount
Expected cash
flows
6 mths or
less
6-12 mths
1-2 years
2-5 years
More than
5 years
In thousands of AUD
Interest rate swaps:
Assets
Liabilities
Forward exchange
contracts:
Assets
Liabilities
Market risk
361
-
(229)
-
132
472
-
124
-
(19,375)
19,145
242
(19,375)
19,145
(106)
124
-
-
-
124
512
-
-
-
512
(288)
-
-
-
(288)
-
-
-
-
-
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income
or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures
within acceptable parameters, while optimising the return.
The Group enters into derivatives, and also incurs financial liabilities, in order to manage market risks. All such transactions are carried out within
the guidelines set by the Group’s hedging policy. Generally the Group seeks to apply hedge accounting in order to manage volatility in profit or loss.
Currency risk
The Group is exposed to currency risk on sales, purchases and borrowings costs that are denominated in a currency other than the respective
functional currencies of Group entities, primarily the Australian dollar (AUD), but also the United States Dollars (USD), Canadian Dollars (CAD), and
Euro Dollars (EURO). The currencies in which these transactions primarily are denominated are AUD, USD, CAD, EURO and Japanese Yen (YEN).
7 1
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
6
Financial risk management Cont.
The Group hedges all trade receivables and trade payables that are denominated in a currency that is foreign to its functional currency and greater
than $50,000. The Group uses forward exchange contracts to hedge this currency risk. Most of the forward exchange contracts have maturities of
less than six months.
In respect of other monetary assets and liabilities held in currencies other than the AUD, the Group ensures that the net exposure is kept to an
acceptable level by matching foreign denominated financial assets with matching financial liabilities and vice versa.
Interest on borrowings is denominated in currencies that match the cash flows generated by the underlying operations of the Group, primarily
AUD, but also USD, CAD and EURO. This provides an economic hedge without derivatives being entered into and therefore no application of hedge
accounting.
The Group’s investments in its subsidiaries and their earnings for the year are not hedged as these currency positions are considered long term in
nature.
The Group’s foreign denominated debt is not hedged to manage the risk of breaching its facility limit of $595 million as the Group considers there to
be appropriate headroom for any adverse movement in exchange rates (refer note 24).
Exposure to currency risk
The Group’s exposure to foreign currency risk at balance date was as follows, based on notional amounts:
Effect inn thousands of AUD
Trade receivables
Trade payables (#)
Gross balance sheet exposure
Forward exchange contracts
Net exposure
30 June 2009
30 June 2008
AUD
USD
AUD
USD
-
-
-
-
-
(35)
-
(35)
-
(35)
7,800
-
7,800
(7,800)
-
559
-
559
-
559
(#) Trade payables does not include future purchase commitments denominated in foreign currencies. The Group hedges these purchases in
accordance with its hedging policy. The payable is not recognised until the asset is received. The fair value of outstanding derivatives are
recognised in the balance sheet at period end.
The Company had no exposure to foreign currency risk (2008: nil)
7 2
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
The following significant exchange rates applied during the year:
CAD
USD
EURO
IDR
Average rate
Reporting date spot rate
2009
2008
2009
2008
0.8628
0.7488
0.5423
7,770
0.9045
0.8956
0.6098
8,266
0.9366
0.8119
0.5761
8,261
0.9722
0.9653
0.6107
8,895
Sensitivity analysis – financial instruments
A 10 percent strengthening of the AUD against the following currencies at 30 June 2009 would have increased (decreased) equity and profit or
loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is
performed on the same basis for 2008.
Effect in thousands of AUD
30 June 2009
USD
EURO
YEN
CAD
30 June 2008
USD
EURO
YEN
Consolidated
Equity
Profit or
loss
(245)
47
(1)
(439)
(940)
(18)
(259)
-
(77)
-
-
-
-
-
A 10 percent weakening of the AUD against the above currencies at 30 June would have had the equal but opposite effect on the above currencies to
the amounts shown above, on the basis that all other variables remain constant.
The effect on the Company would be nil (2008: nil).
Interest rate risk
The Group adopts a policy of ensuring that a minimum of 50 percent of its exposure to changes in interest rates on borrowings is on a fixed rate
basis. This is achieved by entering into interest rate swaps.
7 3
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
6
Financial risk management Cont.
Profile
At the reporting date the interest rate profile of the Company’s and the Group’s interest-bearing financial instruments was:
Cash at bank
Variable interest bearing liabilities
Variable interest bearing finance leases
Total interest bearing liabilities
Effective interest rate swaps to hedge interest rate risk
Australian dollars
Canadian dollars C$80M (2008: C$80M)
United States dollars USD$40M (2008: USD$30M)
Euro dollars €Nil (2008: €10M) (1)
The interest rate swaps principle amount expiring over the
next 5 years:
No later than one year
Later than one year but not later than two
Later than two years but not later than three
Later than three years but not later than four
Later than four years but not later than five
Consolidated
Company
Note
2009
$’000
2008
$’000
2009
$’000
2008
$’000
15
10,422
16,804
128
327,575
14,094
341,669
347,275
17,965
365,240
24
-
-
-
Consolidated
Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
70,000
85,415
49,267
-
204,682
155,415
-
49,267
-
-
204,682
82,500
82,288
31,078
16,375
212,241
12,500
152,288
-
31,078
16,375
212,241
-
-
-
-
-
-
-
-
-
-
-
4
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1) At year end the Group had a €10 million swap, which was considered ineffective under AASB’s as the Group’s EURO denominated debt totalled
€7.8 million. The swap is due to mature 21 January 2013.
The Company does not directly hold any derivative transactions. All derivatives are held by subsidiaries. All trade receivables and trade payables of
the Company are to entities that are part of its tax Consolidated Group. No interest is charged on these balances.
Fair value sensitivity analysis for fixed rate instruments
Where a derivative is considered ineffective the Group recognises the fair value of the instrument in the profit and loss. Therefore a change in
interest rates of the Group’s ineffective hedge at reporting date would be recognised in the Group’s profit or loss.
7 4
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
Cash flow sensitivity analysis for variable rate instruments
A change of 100 basis points in interest rates at the reporting date would have increased/(decreased) equity and profit or loss by the amounts shown
below. The analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same
basis for 2008.
Effect in thousands of AUD
30 June 2009
Cash flow sensitivity
30 June 2008
Cash flow sensitivity
Fair values
Fair values versus carrying amounts
Profit or loss
100bp
increase
100bp
decrease
Equity
100bp
increase
100bp
decrease
415
(415)
5,123
(5,123)
(1,806)
1,806
4,532
(4,532)
The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows:
Consolidated
In thousands of AUD
Receivables
Cash and cash equivalents
Interest rate swaps used for hedging:
Assets
Liabilities
Forward exchange contracts used for hedging:
Assets
Liabilities
Secured bank loans
Finance lease liabilities
Trade and other payables (*)
(*) Excludes derivatives (shown separately)
Company
In thousands of AUD
Trade and other receivables
Cash and cash equivalents
Trade and other payables
30 June 2009
Carrying
Amount
Fair
Value
30 June 2008
Carrying
Amount
Fair
Value
77,691
10,422
77,691
10,422
103,212
16,804
103,212
16,804
-
(16,310)
-
(16,310)
361
-
361
-
27
(36)
(327,575)
(14,094)
(41,612)
(311,487)
27
(36)
(324,303)
(14,094)
(41,612)
(308,215)
-
(229)
(347,275)
(17,965)
(45,943)
(291,035)
-
(229)
(346,658)
(17,965)
(45,943)
(290,418)
30 June 2009
Carrying
Amount
Fair
Value
30 June 2008
Carrying
Amount
Fair
Value
497,757
128
(6,030)
491,855
497,757
128
(6,030)
491,855
547,329
4
(3,695)
543,638
547,329
4
(3,695)
543,638
The basis for determining fair values is disclosed in note 4.
7 5
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
6
Financial risk management Cont.
Interest rates used for determining fair value
The interest rates used to discount estimated cash flows, where applicable, are based on the Government yield curve at the reporting date plus an
adequate credit spread, and were as follows:
Derivatives
Loans and borrowings
Leases
2009
-
-
-
2.0%
2.0%
3.0%
8.0% 3.0%
8.0% 3.0%
10.0% 4.0%
2008
-
-
-
8.0%
8.0%
10.0%
The Group has not identified other price risks that it considers it is materially exposed to, other than those identified.
Capital management
The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development
of the business. The Board of Directors monitors the return on capital, which the Group defines as earnings before interest, tax and amortisation
(‘EBITA’) divided by total closing net tangible assets plus interest bearing liabilities. The Board of Directors also monitors the level of dividends to
ordinary shareholders.
The Board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and
security afforded by a sound capital position. The Group’s EBITA return on funds employed for the year was 8.8 percent (2008: 14.0 percent). This
includes significant items of $25.6 million as a result of asset impairments, doubtful debt provisioning and business restructure costs. Had the
significant items not occurred the Group EBITA return on funds employed for the year would have been 11.6 percent.
Primarily for satisfying potential future obligations under its employee share plans the Group purchases its own shares on the market. The timing
of these purchases depends on the number of shares that have been issued under either of its employee share plans. Buy and sell decisions are
made on a specific transaction basis; the Group does not have a defined share buy-back plan.
There were no changes in the Group’s approach to capital management during the year.
Throughout the year the Group has maintained a debt covenant gearing ratio of less than three times. The gearing ratio is determined as total debt
over the last 12 months EBITDA.
7
Other income
Net profit on sale of non current assets (1)
Sundry income
Dividend received
Consolidated
The Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
3,858
9,476
739
-
693
-
-
-
-
-
30,700
33,600
4,597
10,169
30,700
33,600
(1)
Included in net profit on the sale of non current assets is the sale of rental equipment which occurs in the ordinary course of business.
7 6
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
8
Profit before income tax expense
Consolidated
The Company
Note
2009
$’000
2008 (1)
$’000
2009
$’000
2008
$’000
Profit before income tax expense
has been arrived at after charging/
(crediting) the following items:
Cost of sale of machines and parts
131,145
231,091
Cost of sales inventory on rent
6,968
8,294
Impairment of tangible assets:
- inventory
- property, plant and equipment
Employee expenses:
- superannuation
Depreciation of:
- buildings
- plant and equipment - owned
- plant and equipment - leased
- furniture fittings and fixtures
- office equipment
- motor vehicles
- leasehold improvements
- sundry plant
Amortisation of:
- contract intangible
- other intangibles
Impairment of goodwill
19
12,567
-
-
Total depreciation, amortisation and
impairment of goodwill
Financial expenses:
- interest expense
- ineffective hedge realised on European restructure
- amortisation of debt establishment costs
- other facility costs
Financial income:
- interest revenue
Net financial expenses
Net foreign exchange (gain)/loss
(1) Comparatives have been restated (refer note 5).
117,523
94,230
23,203
1,231
1,543
1,282
27,259
23,517
-
294
1,358
25,169
(1,279)
25,980
(1,624)
23,545
754
316
3,446
3,099
48
12,966
6,502
19,468
-
-
-
802
97,679
1,172
231
620
1,297
632
2,185
104,618
378
86,961
1,204
164
601
1,661
489
1,655
93,113
65
273
338
911
206
1,117
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7 7
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
9
Auditor’s remuneration
In thousands of AUD
Audit services
Auditors of the Company
KPMG Australia:
- audit and review of financial reports
Overseas KPMG Firms:
- audit and review of financial reports
Other services
Auditors of the Company
KPMG Australia:
- other assurance services
- taxation services
- accounting assistance
Overseas KPMG Firms:
- taxation services
- accounting assistance
- transaction services
Consolidated
The Company
2009
$
2008
$
2009
$
2008
$
391,700
392,528
391,700
392,528
309,698
701,398
249,413
641,941
-
391,700
-
392,528
4,200
94,785
9,070
121,176
7,935
4,629
241,795
116,030
108,953
-
115,960
2,081
440,107
783,131
(1)
-
94,785
9,070
-
-
-
103,855
-
108,953
-
-
-
-
108,953
943,193
1,425,072
495,555
501,481
(1)
Included in these amounts are fees for transaction and assurance services for offshore business combinations.
7 8
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
10
Income tax expense
(a)
Recognised in the income statement
Current tax expense:
Current year
Adjustments for prior years
Deferred tax expenses:
Origination and reversal of temporary differences
Reduction in tax rate
Adjustment for prior years
Consolidated
The Company
Note
2009
$’000
2008
$’000
2009
$’000
2008
$’000
26,267
28,856
(99)
23
26,168
28,879
(471)
(99)
(570)
6,327
(563)
(3,435)
12
2,329
5,997
(1,024)
(5,703)
(730)
-
-
-
-
(264)
23
(241)
-
-
-
-
Total income tax expense in income statement
28,497
28,149
(570)
(241)
(b) Deferred tax recognised directly in equity:
Capital raising costs
Cashflow hedges
(c) Numercial reconciliation between tax expense
and pre tax net profit:
Prima facie income tax expense calculated
at 30% on net profit
Increase/(decrease) in income tax expense due to:
Effect on tax rate in foreign jurisdictions
Share based payments
Current year losses for which no deferred tax asset
was recognised
Reduction in tax rate in foreign jurisdictions
Derecognition of previously recognised deferred tax assets (1)
Tax - investment allowance
Sundry
Decrease in income tax expense due to:
Dividend from subsidiary
Under/(over) provided in prior years
Income tax expense/(benefit)
1,344
(4,554)
(3,210)
1,328
(379)
949
1,344
-
1,344
1,328
-
1,328
12,530
28,703
8,659
9,715
(384)
106
9,702
(563)
6,977
(269)
497
(124)
145
-
(1,024)
-
-
426
-
80
-
-
-
-
-
-
101
-
-
-
-
-
-
(99)
-
23
28,497
28,149
(9,210)
(10,080)
(99)
(570)
23
(241)
(1) Tax assets in the Group were derecognised to the extent that it was no longer probable that sufficient taxable profit will be available in a
sufficient time frame to allow the benefit of the deferred tax asset to be utilised. Any such reduction shall be reversed to the extent that it
becomes probable that sufficient taxable profit will be available.
7 9
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
11
Current tax assets and liabilities
The current tax asset for the Group of $nil (2008: $3,036,000) and for the Company of $nil (2008: $nil) represents income taxes recoverable in
respect of prior periods and that arise from payment of taxes in excess of the amount due to the relevant tax authority. The current tax liability
for the Group of $12,519,000 (2008: $24,289,000) and for the Company of $12,411,000 (2008: $24,231,000) represents the amount of income taxes
payable in respect of current and prior financial periods.
The Company liability includes the income tax payable by all members of the tax consolidated group in Australia.
12
Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Consolidated
Assets
Liabilities
Net
2009
$’000
2008
$’000
2009
$’000
2008
$’000
2009
$’000
2008
$’000
Property, plant and equipment
(383)
(474)
33,456
25,333
33,073
24,859
Intangible assets
Receivables
Inventories
Payables
Derivatives
Interest-bearing loans and borrowings
Employee benefits
Equity - capital raising costs
Provisions
Other items
Tax losses carried forward
Tax (assets) / liabilities
Set off of tax
-
-
(2,791)
(3,926)
7
2
90
10
7
90
(2,789)
(3,916)
(51)
2,355
13,650
1,747
13,599
(608)
(1,412)
(4,893)
(718)
(1,759)
(2,820)
(23)
-
(1,130)
(69)
(3,908)
(1,434)
(4,164)
(50)
(294)
(697)
(4,904)
7
8
-
107
(1,405)
(1,130)
(4,885)
38
895
2,721
177
(1,187)
-
-
-
-
-
-
-
-
-
-
(1,759)
(1,434)
(2,820)
(4,164)
(23)
-
(50)
(294)
(697)
(4,904)
(16,104)
(20,404)
36,730
41,911
20,626
21,507
16,104
16,920
(16,104)
(16,920)
-
-
Net tax (assets) / liabilities
-
(3,484)
20,626
24,991
20,626
21,507
The Company
Assets
Liabilities
Net
Equity - capital raising costs
Net tax (assets) / liabilities
2009
$’000
(2,820)
(2,820)
2008
$’000
(4,164)
(4,164)
2009
$’000
2008
$’000
2009
$’000
2008
$’000
-
-
-
-
(2,820)
(4,164)
(2,820)
(4,164)
8 0
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
Movement in temporary differences during the year
Acquired
through
business
combination
38
-
-
529
-
-
Consolidated
The Company
Recognised
in income
Recognised
in equity
Balance
30 June 08
Balance
1 July 07
Recognised
in income
Recognised
in equity
Balance
30 June 08
4,461
(210)
(695)
120
(91)
-
-
-
-
-
-
(379)
24,859
90
(3,916)
13,599
(1,130)
38
-
-
-
-
-
-
-
-
(1,568)
-
(1,187)
-
-
-
-
-
567
(213)
-
204
(516)
(2,222)
(730)
-
1,328
-
-
-
949
(1,434)
(4,164)
(50)
(294)
(4,904)
21,507
-
(5,492)
-
-
-
(5,492)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,328
-
-
-
1,328
-
(4,164)
-
-
-
(4,164)
Acquired
through
business
combination
-
-
-
-
-
-
-
-
-
-
-
-
-
Consolidated
The Company
Recognised
in income
Recognised
in equity
Balance
30 June 09
Balance
1 July 08
Recognised
in income
Recognised
in equity
Balance
30 June 09
8,214
(83)
1,127
(11,852)
(275)
(369)
1,364
(325)
-
27
294
4,207
2,329
-
-
-
-
-
(4,554)
33,073
7
(2,789)
1,747
(1,405)
(4,885)
-
177
-
-
-
-
-
-
-
-
1,344
-
-
-
(3,210)
(1,759)
(2,820)
(23)
-
(697)
20,626
-
(4,164)
-
-
-
(4,164)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,344
-
-
-
1,344
-
(2,820)
-
-
-
(2,820)
Balance
1 July 07
20,360
300
(3,221)
12,950
(1,039)
417
381
(1,221)
(5,492)
(254)
222
(2,682)
20,721
Balance
1 July 08
24,859
90
(3,916)
13,599
(1,130)
38
(1,187)
(1,434)
(4,164)
(50)
(294)
(4,904)
21,507
Property, plant and equipment
Intangible assets
Receivables
Inventories
Payables
Derivatives
Interest-bearing loans and
borrowings
Employee benefits
Equity - capital raising costs
Provisions
Other items
Tax losses carried forward
Property, plant and equipment
Intangible assets
Receivables
Inventories
Payables
Derivatives
Interest-bearing loans and
borrowings
Employee benefits
Equity - capital raising costs
Provisions
Other items
Tax losses carried forward
13
Dividends
(i)
Dividends recognised in the current year by the Group are:
2009
In thousands of AUD
Final 2008 ordinary
Interim 2009 ordinary
Total amount
Cents
per share
Total
amount $
Franked/
unfranked
Date of
payment
2.5
2.0
15,781
12,625
28,406
Franked
Franked
30 September 2008
9 April 2009
Franked dividends declared or paid during the year were franked at the tax rate of 30 percent.
8 1
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
13
Dividends Cont.
Subsequent to 30 June 2009
After the balance sheet date the following dividends were proposed by the Directors. The dividends have not been provided for. The declaration and
subsequent payment of dividends have no income tax consequences.
2009
In thousands of AUD
Final 2009 ordinary
Total amount
Cents
per share
Total
amount $
Franked/
unfranked
Date of
payment
2.0
12,625
12,625
Franked
30 September 2009
The financial effect of these dividends has not been brought to account in the financial statements for the financial year ended 30 June 2009 and will
be recognised in subsequent financial reports.
Dividends recognised in the prior year by the Group are:
2008
In thousands of AUD
Interim 2008 ordinary
Total amount
Cents
per share
Total
amount $
Franked/
unfranked
Date of
payment
2.0
12,625
12,625
Franked
4 April 2008
(ii)
Franking account
Dividend franking account
30% franking credits available to shareholders of Emeco Holdings Limited
for subsequent financial years
The Company
2009
$’000
2008
$’000
48,259
39,181
The above available amounts are based on the balance of the dividend franking account at year-end adjusted for:
(a) franking credits that will arise from the payment of current tax liabilities and recovery of current tax receivables;
(b) franking debits that will arise from the payment of dividends recognised as a liability at the year end;
(c) franking credits that will arise from the receipt of dividends recognised as receivables by the tax consolidated group at the year-end; and
(d) franking credits that the entity may be prevented from distributing in subsequent years.
The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends. The impact on the dividend
franking account of dividends proposed after the balance sheet date but not recognised as a liability is to reduce it by $5,411,000 (2008: $6,763,000).
In accordance with the tax consolidation legislation, the Company as the head entity in the tax-consolidated group has also assumed the benefit of
$48,259,000 (2008: $39,181,000) franking credits.
8 2
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
14
Segment reporting
Segment information is presented in respect of the Group’s business and geographical segments. The primary format, business segments, is
based on the Group’s management and internal reporting structure.
Inter-segment pricing is determined on an arm’s length basis. Segment results, assets and liabilities include items directly attributable to a
segment as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise interest earnings assets and revenue,
interest-bearing loans, borrowings, and expenses, and corporate assets.
Segment capital expenditure is the total cost incurred during the year to acquire segment assets that are expected to be used for more than one
year.
Business Segments
The Group comprises the following main business segments, based on the Group’s management reporting system:
Rental
Sales
Parts
Provides a wide range of earthmoving equipment and maintenance services
to customers.
Sells a wide range of earthmoving equipment to customers in the civil
construction and mining industries.
Procuring and supplying global sourced used and reconditioned parts to
external customers and internally to the rental and sales division.
On 1 July 2008 the maintenance segment was consolidated with the rental segment in line with management reports. Comparatives have been
restated.
Geographical segments
In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers. Segment
assets are based on the geographical location of the assets.
The Group’s business segments operate geographically as follows:
Australia
Asia
North America
Europe
Rental, sales and parts divisions throughout Australia
Rental division in Indonesia
Rental, sales and parts divisions throughout North America
Rental and sales division in The Netherlands
8 3
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
14
Segment reporting Cont.
Business segments
Rental (1)
Sales
Parts
Other
Eliminations
Consolidated
2009
$’000
2008
$’000
2009
$’000
2008
$’000
2009
$’000
2008
$’000
2009
$’000
2008
$’000
2009
$’000
2008
$’000
2009
$’000
2008
$’000
External revenues
391,279 372,319
110,225 210,589
26,739
34,949
Inter segment revenue
1,323
1,235
14,866
33,796
2,117
7,414
Total segment revenue
392,602 373,554
125,091 244,385
28,856
42,363
-
-
-
-
-
-
-
-
528,243
617,857
(18,306)
(42,445)
-
-
(18,306)
(42,445)
528,243
617,857
Unallocated revenue
Total revenue
-
-
528,243
617,857
Segment result (2)
87,426
106,917
(20,377)
8,593
697
3,713
-
-
-
-
67,746
119,223
Unallocated revenues
and expenses
Net financing expense
Profit before income tax
Income tax expense
Net profit
Depreciation and
amortisation
101,879
91,914
2,737
1,878
340
438
Segment Assets
887,492
915,132
158,954 156,329
63,072
72,207
Unallocated corporate
assets
Consolidated total
assets
-
-
(25,980)
(23,545)
41,766
95,678
(28,497)
(28,149)
13,269
67,529
-
104,956
94,230
-
1,109,518
1,143,668
10,435
23,334
1,119,953
1,167,002
-
-
-
-
-
-
Segment Liabilities
44,937
16,063
8,688
12,891
2,108
1,772
-
-
-
-
55,733
30,726
Unallocated corporate
liabilities
Consolidated total
liabilities
381,354
434,540
437,087
465,266
Capital expenditure
118,259 197,176
5,039
6,884
939
4,231
-
-
-
-
124,237
208,291
Geographical segments
Australia
Asia
North America
Europe
Consolidated
2009
$’000
2008
$’000
2009
$’000
2008
$’000
2009
$’000
2008
$’000
2009
$’000
2008
$’000
2009
$’000
2008
$’000
Segment
Revenue
Segment
Assets
363,546 459,524
50,483
23,837
96,409
94,917
17,805 39,579
528,243
617,857
740,722 820,010
128,015
90,937
208,443 219,394
42,773 36,661
1,119,953
1,167,002
Capital expenditure
72,295 113,125
28,351
29,779
22,966
58,162
625
7,225
124,237
208,291
(1) On 1 July 2008 the maintenance segment was consolidated with rental in line with management reports. Comparatives have also been
restated. Total maintenance segment revenue, segment result, depreciation and amortisation and capital expenditure were $3.4 million, $0.3
million, $0.2 million and $0.1 million respectively.
(2) The segment result includes significant items such as impairment changes and restructure costs for the rental, sales and parts segments of
$7.3 million, $26.9 million and $4.0 million respectively. After excluding the significant items, the segment result for Rental, Sales and Parts
would be $94.7 million, $6.5 million and $4.7 million respectively.
8 4
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
15
Cash assets
Cash at bank
16
Trade and other receivables
Current
Trade receivables
Less: Impairment of receivables
Receivables from subsidiaries - tax balances
Other receivables
Non-Current
Other receivables
Fair value derivatives
Loans to controlled entities
Consolidated
The Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
10,422
16,804
128
4
Consolidated
The Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
78,852
(8,816)
70,036
-
7,655
77,691
85
-
-
85
101,412
(5,378)
96,034
-
7,178
103,212
215
361
-
576
-
-
-
25,002
-
25,002
-
-
472,755
472,755
-
-
-
35,623
-
35,623
-
-
511,706
511,706
The Group’s exposure to credit and currency risks and impairment losses associated with trade and other receivables are disclosed in note 6.
Intercompany loans
The Group does not charge interest on loans established within the Australian group. Interest is charged on intercompany cross boarder loans at
arms length interest rates. Loans are repayable at call but are not expected to be repaid within 12 months with the exception of intercompany tax
balances.
17
Prepayments
Tyre prepayments
Other prepayments
Consolidated
The Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
2,792
2,518
5,310
4,644
2,367
7,011
-
-
-
-
-
-
8 5
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
18
Inventories
Equipment and Parts - at cost
Work in progress - at cost
Consumables, spare parts - at cost
Total at cost
Equipment and Parts - at NRV (1)
Total inventory
Balance at 1 July 2008
Additions
Reclassification of consumables to fixed assets (2)
Impairment loss on inventory (1)
Disposals
Balance at 30 June 2009
Consolidated
The Company
2009
$’000
113,380
3,362
4,765
121,507
21,143
142,650
187,328
109,250
(26,851)
(12,966)
(114,111)
142,650
2008
$’000
145,446
5,620
36,262
187,328
-
187,328
142,075
257,921
-
-
(212,668)
187,328
2009
$’000
2008
$’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1) During the year ended 30 June 2009 the write-down of inventories to net realisable value (“NRV”) recognised as an expense in the Income
Statement amounted to $12,966,000 (2008: $nil).
(2) The Group reclassified the spare parts inventory of tyres and parts stock on hand to property, plant and equipment as they are solely used for
the rental fixed assets.
8 6
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
19
Intangible assets
Goodwill
Carrying amount at the beginning of the year
Acquisition through business combination
Impairment of goodwill
Effects of movement in foreign exchange
Contract intangibles - at cost
Less: Accumulated amortisation
Other intangibles - at cost
Less: Accumulated depreciation
Consolidated
The Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
222,885
-
(12,567)
5,015
215,333
712
(688)
24
1,614
(1,145)
469
221,927
3,868
-
(2,910)
222,885
712
(623)
89
1,388
(801)
587
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total intangible assets
215,826
223,561
Movement in contract intangibles
Carrying amount at the beginning of the year
Acquisition through business combination
Less : Accumulated amortisation
89
-
(65)
24
1,000
-
(911)
89
Amortisation and impairment losses
The amortisation charge and impairment of goodwill are recognised in the following line item in the income statement:
Amortisation expense
Impairment of goodwill
Total expensed for the year
Consolidated
The Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
338
12,567
12,905
1,117
-
1,117
-
-
-
-
8 7
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
19
Intangible assets Cont.
Impairment tests for cash generating units contained goodwill
For the purpose of impairment testing, goodwill is allocated to the Group’s geographical operating divisions which represents the lowest level within
the Group at which the goodwill is monitored for internal management purposes.
The aggregate carrying amounts of goodwill allocated to each unit are as follows:
Australian rental
Canada rental
USA rental
Asian rental
Total rental
Australian sales
European sales
Australian parts
USA parts
Consolidated
The Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
168,591
6,272
-
20,365
195,228
16,376
-
3,729
-
215,333
168,591
5,995
1,450
17,129
193,165
16,376
6,323
3,729
3,292
222,885
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The Group has determined the recoverable amount of its cash generating units (“CGU”) using a value in use methodology (2008: fair value less cost to
sell). Although a fair value less cost to sell valuation methodology is generally more aligned in the principals adopted by the Group in valuing potential
business acquisitions, the change in valuation methodology reflects the fact that there has been little activity in the market during the year in which
to compare similar transactions of assets and the associated valuations.
The Group’s value in use calculation is based on discounted cash flows for five years plus a terminal value. Real post tax discount rates have been
derived as a weighted cost of equity and debt. Cost of equity is calculated using country specific ten year bond rates plus an appropriate market
risk premium. The cost of debt is determined using the CGU’s functional currencies three year swap rate plus a margin for three year tenure debt
of equivalently credit rated businesses at 30 June 2009. The three year swap rates were used as the base rate to reflect the relative illiquidity for
longer tenure debt in the current market. The pre-tax discount rates applied were equivalent to post-tax discount rates. The real post tax discount
rates for determining the rental CGU’s valuations range between 7.0 percent and 13.7 percent. For the future cashflows of each CGU, the Group has
revenue growth rates between 1.0 percent and 7.5 percent for the first five years and then applied a 1.0 percent growth rate for the terminal value
for all CGU’s.
The CGU valuations are sensitive to changes in the discount rate. The Company has further tested those CGU’s that were not impaired during
the year (refer below) by increasing the discount rate for each of the CGU’s by an additional 2.0 percent. The sensitised testing confirmed that no
impairment would be recognised under this scenario.
Impairment loss
As a result of the general market downturn the Group’s impairment testing at 30 June 2009 resulted in the impairment of the goodwill within the
CGU’s of USA rental, European sales and USA parts in the amounts of $1,689,000, $6,911,000 and $3,967,000 respectively.
The current year’s CGU’s were valued using a value in use methodology. The prior years valuations were determined using a fair value less cost to
sell methodology. The rationale for the change in methodologies has been noted above.
8 8
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
20
Investments
Investments in subsidiaries
Consolidated
The Company
Note
2009
$’000
2008
$’000
31
-
-
2009
$’000
202,753
2008
$’000
162,729
The Company’s investment in subsidiaries represents its investment in Emeco (UK) Limited.
21
Property, plant and equipment
Consolidated
The Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
Freehold Land and Buildings - at cost
Less: Accumulated depreciation
Leasehold Improvements - at cost
Less: Accumulated depreciation
Plant and Equipment - at cost
Less : Accumulated depreciation
Leased Plant and Equipment - at capitalised cost
Less : Accumulated depreciation
Furniture, Fixtures and Fittings - at cost
Less : Accumulated depreciation
Office Equipment - at cost
Less : Accumulated depreciation
Motor Vehicles - at cost
Less : Accumulated depreciation
Sundry Plant - at cost
Less : Accumulated depreciation
30,352
(1,450)
28,902
4,753
(1,726)
3,027
23,171
(706)
22,465
4,551
(1,180)
3,371
846,270
(240,856)
605,414
752,064
(185,420)
566,644
22,176
(4,251)
17,925
2,002
(724)
1,278
3,120
(2,062)
1,058
6,834
(2,804)
4,030
12,074
(5,739)
6,335
19,523
(1,980)
17,543
1,915
(624)
1,291
2,808
(1,639)
1,169
5,970
(1,823)
4,147
9,041
(3,681)
5,360
Total Property, Plant and Equipment - at net book value
667,969
621,990
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
8 9
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
21
Property, plant and equipment Cont.
Reconciliations
Reconciliations of the carrying amounts for each class of property,
plant and equipment are set out below:
Consolidated
The Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
Freehold Land and Buildings
Carrying amount at the beginning of the year
Additions
Acquisition through entity acquired
Disposal
Depreciation
Effects of movements in foreign exchange
Carrying amount at the end of the year
Leasehold Improvements
Carrying amount at the beginning of the year
Additions
Acquisition through entity acquired
Disposals
Depreciation
Effects of movement in foreign exchange
Carrying amount at the end of the year
Plant and Equipment
Carrying amount at the beginning of the year
Additions
Capital work in progress
Transfer from leased plant and equipment
Reclassification of inventory
Acquisition through entity acquired
Disposals
Depreciation
Impairment loss (1)
Effects of movements in foreign exchange
Carrying amount at the end of the year
Furniture, Fixtures and Fittings
Carrying amount at the beginning of the year
Additions
Acquisition through entity acquired
Disposals
Depreciation
Effects of movement in foreign exchange
Carrying amount at the end of the year
22,465
6,877
-
-
(802)
362
28,902
3,371
109
-
(3)
(632)
182
3,027
566,644
112,874
2,872
4,200
26,851
-
(17,242)
(97,679)
(6,285)
13,179
605,414
1,291
170
-
(1)
(231)
49
1,278
8,601
15,207
-
(569)
(378)
(396)
22,465
2,462
1,075
323
-
(489)
-
3,371
507,550
175,391
6,116
9,672
-
110
(30,366)
(86,961)
-
(14,868)
566,644
1,108
176
177
(6)
(164)
-
1,291
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1) The loss was incurred as a result of the impairment of certain small civil construction equipment in the Group’s North
American fleet due to a decline in construction activity which resulted in significant oversupply.
9 0
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
Office Equipment
Carrying amount at the beginning of the year
Additions
Acquisition through entity acquired
Disposals
Depreciation
Effects of movement in foreign exchange
Carrying amount at the end of the year
Motor Vehicles
Carrying amount at the beginning of the year
Additions
Acquisition through entity acquired
Disposals
Depreciation
Effects of movement in foreign exchange
Carrying amount at the end of the year
Sundry Plant
Carrying amount at the beginning of the year
Additions
Acquisition through entity acquired
Disposals
Depreciation
Effects of movement in foreign exchange
Carrying amount at the end of the year
Leased Plant and Equipment
Carrying amount at the beginning of the year
Additions
Transfer to owned plant and equipment
Depreciation
Effects of movements in foreign exchange
Carrying amount at the end of the year
Consolidated
The Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
1,169
450
-
(21)
(620)
80
1,058
4,147
1,095
-
(171)
(1,297)
256
4,030
5,360
2,662
-
(41)
(2,185)
539
6,335
17,543
1,842
(4,200)
(1,172)
3,912
17,925
1,305
605
-
(140)
(601)
-
1,169
6,360
2,638
59
(3,180)
(1,661)
(69)
4,147
4,258
2,813
-
(17)
(1,655)
(39)
5,360
12,659
17,208
(9,672)
(1,204)
(1,448)
17,543
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Security
The Group’s assets are subject to a fixed and floating charge under the terms of the syndicated debt facility. Refer to note 23 for further details.
9 1
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
22
Trade and other payables including derivatives
Trade creditors
Other creditors and accruals
Derivatives used for hedging
Payable to subsidiaries - tax balances
Consolidated
The Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
17,696
23,916
16,310
-
57,922
18,660
27,512
-
-
46,172
-
387
-
5,643
6,030
-
-
-
3,695
3,695
The Group’s exposure to currency and liquidity risk associated with trade and other payables is disclosed in note 6.
23
Interest bearing liabilities
Current
Working capital facility
Lease liabilities - secured
Non-Current
Bank loans - secured
Lease liabilities - secured
Debt raising costs
Bank loans
Consolidated
2009
$’000
2008
$’000
The Company
2008
$’000
2009
$’000
-
7,943
7,943
-
6,557
6,557
327,575
6,151
(3,432)
330,294
347,275
11,408
(617)
358,066
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Under the terms of the Group’s syndicated loan facility the banks hold a fixed and floating charge over the assets and undertakings of the Group.
The $595.0 million facility was established on 15 August 2008 and has an expiration date of 15 August 2011. Each entity of the consolidated group is
a guarantor. The syndicated facility allows for funds to be drawn in Australian, United States, Canadian and Euro dollars. At year end the Group had
drawn A$104.0 million, US$84.5 million (A$104.1 million), C$99.2 million (A$105.9 million) and €7.8 million (A$13.6 million) (2008: A$110.2 million,
US$86.6 million (A$89.7 million), C$114.8 million (A$118.1 million) and €17.8 million (A$29.2 million).
Working capital facility
The working capital facility is secured under the syndicated facility mentioned above, and has a limit of $35.0 million (2008: $25.0 million). The
facility expires on 13 November 2009 and it is the intention that it will be renegotiated for another 12 months.
Other financial liabilities
Under the terms of the syndicated loan facility the Group can enter other permitted indebtedness totalling $100.0 million (2008: $40.0 million). At
year end the Group had established finance lease facilities totalling $32.5 million (2008: $36.3 million) which are included within this limit. Assets
leased under the facility are secured by the facility.
9 2
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
Finance lease liabilities
Finance lease liabilities of the Group are payable as follows:
Consolidated
In thousands of AUD
Less than one year
Between one and five years
More than five years
Future
minimum lease
payments
Interest
2009
2009
Present value
of minimum
lease
payments
2009
Future
minimum lease
payments
Interest
Present value of
minimum lease
payments
2008
2008
2008
8,350
6,290
-
14,640
(407)
(139)
-
(546)
7,943
6,151
-
14,094
7,471
12,010
-
19,481
(914)
(602)
-
(1,516)
6,557
11,408
-
17,965
The Company has no finance lease liabilities.
The Group leases plant and equipment under finance leases. The Group’s lease liabilities are secured by the leased assets of $17,925,000 (2008:
$17,543,000). In the event of default, the leased assets revert to the lessor.
24
Financing arrangements
The Group has the ability to access the following lines of credit:
Total facilities available:
Bank loans
Finance leases
Working capital
Facilities utilised at reporting date:
Bank loans
Finance leases
Working capital
Facilities not utilised or established at reporting date:
Bank loans
Finance leases
Working capital
Consolidated
The Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
595,000
32,492
35,000
662,492
490,000
36,258
25,000
551,258
327,575
14,094
-
341,669
347,275
17,965
-
365,240
267,425
18,398
35,000
320,823
142,725
18,293
25,000
186,018
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9 3
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
25
Provisions
Current
Employee benefits:
- annual leave
- long service leave
Restructuring
Non-Current
Employee benefits - long service leave
Defined contribution superannuation funds
Consolidated
The Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
4,597
486
1,908
6,991
4,087
422
-
4,509
792
682
-
-
-
-
-
-
-
-
-
-
The Group makes contributions to defined contribution superannuation funds. The expense recognised for the year was $3,446,000 (2008:
$3,099,000).
Restructuring
During the year ended 30 June 2009 a provision of $1.9 million was made to cover the costs associated with restructuring and downsizing the
operations of the European subsidiaries. Estimated restructuring costs mainly include employee termination benefits and contract termination
costs and associated legal fees. This is based on a detailed plan approved by the board and communicated to management and employee
representatives.
26
Share-based payments
During the year the Company issued performance shares and performance rights to key management personnel and senior employees of the Group
under its LTIP (refer to note 3j(v)).
During the prior year LTIP performance shares and rights were also issued under similar terms and conditions and priced relative to the time of
issue.
Prior to establishing the LTIP certain key management personnel and senior employees were issued shares in the Company under the Company’s
MISP (refer to note 3j(v)).
Only the Company’s executive Directors have outstanding options in the Company at year end. The options were issued on 4 August 2006 and have
been disclosed in note 32.
Performance shares, performance rights, options and shares issued under the MISP are all equity settled.
9 4
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
Grant date / employees entitled
Number of Instruments
30 June 2009
Performance shares/rights 2007
990,000
Performance shares/rights 2008
9,819,790
Total performance shares/rights
10,809,790
Contractual life of
performance shares/rights
5 years
5 years
Vesting conditions
3 years service TSR ranking to a basket
of direct and indirect peers of 98 listed
companies.
50 percent entitlement for a 50.1 percent
ranking within TSR group. Pro rata
entitlement up to 100 percent vesting for a
ranking of 75 percent better to TSR group.
3 years service TSR ranking to a basket
of direct and indirect peers of 98 listed
companies.
50 percent entitlement for a 50.1 percent
ranking within TSR group. Pro rata
entitlement up to 100 percent vesting for a
ranking of 75 percent better to TSR group
The movement of performance shares and performance rights on issue during the year were as follows:
Outstanding at 1 July
Forfeited during the period
Exercised during the period
Granted during the period
Outstanding at 30 June
Exercisable at 30 June
Number of performance shares/rights
2009
Number of performance shares/rights
2008
1,290,000
(300,000)
-
9,819,790
10,809,790
-
-
-
-
1,290,000
1,290,000
-
Grant date / employees entitled
Option grant to executive directors on
4 August 2006
Number of
Instruments
4,266,667
Vesting conditions
Achievement of forecast prospectus NPAT
2006. 10 percent compounding growth in NPAT
for 2 years there after. Options vest equally over
3 years upon satisfying each hurdle
Contractual life of
options
5 years
4,266,667
The number and weighted average exercised prices of share options are as follows:
Outstanding at 1 July
Forfeited during the period
Exercised during the period
Granted during the period
Outstanding at 30 June
Exercisable at 30 June
Weighted average
exercise price 2009
Number of
options 2009
Weighted average
exercise price 2008
Number of
options 2008
$1.92
$1.92
-
-
$1.92
$1.92
6,400,000
(2,133,333)
-
-
4,266,667
2,133,333
$1.92
-
-
-
$1.92
$1.92
6,400,000
-
-
-
6,400,000
2,133,333
9 5
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
26
Share-based payments Cont.
Grant date / employees entitled
MISP 2006
MISP 2007
MISP 2008
Number of
Instruments
1,690,000
Vesting conditions
Service requirement. Partial vesting
entitlement after 2 years with full vesting
after 5 years.
Contractual life of
MISP
10 years
1,120,000
Service requirement. Partial vesting
entitlement after 2 years with full vesting
after 5 years.
560,000
3,370,000
Service requirement. Partial vesting
entitlement after 2 years with full vesting
after 5 years.
10 years
10 years
The number and weighted average exercised prices of MISPs are as follows:
Outstanding at 1 July
Forfeited during the period
Exercised during the period
Granted during the period
Outstanding at 30 June
Exercisable at 30 June (1)
Weighted average
exercise price 2009
$0.80
$0.97
-
-
$0.72
-
Number of MISP
2009
4,770,000
(1,400,000)
-
-
3,370,000
-
Weighted average
exercise price 2008
$0.79
$0.71
-
$0.79
$0.80
-
Number of MISP
2008
4,850,000
(640,000)
-
560,000
4,770,000
-
(1) While satisfying the service requirements under the MISP, the shares are not considered exercisable until the full vesting period has been
satisfied.
The fair value of services received in return for the performance shares and rights issued during the year are based on the fair value of the LTIPs
granted, measured using the Monte Carlo share price simulation model with the following inputs.
Key management
personnel 2009
Key management
personnel 2008
Senior employees
2009
Senior employees
2008
Fair value of performance shares/rights at grant date
Share price
Exercise price
Expected volatility (weighted average volatility)
Option life (expected weighted average life)
Expected dividends
Risk-free interest rate (based on government bonds)
$0.40 - $0.85
$Nil
50%
4 years
5.2%
4.5%
$1.57
$Nil
30%
4 years
4.0%
6.6%
$0.40 - $0.85
$Nil
50%
4 years
5.2%
4.5%
$1.57
$Nil
30%
4 years
4.0%
6.6%
9 6
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
Employee expenses
In AUD
Performance shares/rights (1)
Options
MISP
Total expense recognised as employee costs (2)
Total intrinsic value of liability for vested MISP
benefits
Total intrinsic value for vested options
Consolidated
Company
2009
2008
2009
2008
716,899
(295,334)
(63,524)
257,045
4,660
195,495
358,041
457,200
-
-
$230,000
-
-
-
-
-
-
-
-
-
-
-
-
-
(1) At year end no performance shares or rights had vested.
(2)
Included in share based employee expenses for the year is the write back of prior year share based employee expenses as a result of the
shares, rights or options being forfeited during the year because the employee does not meet the required performance hurdles or service
requirements.
27
Share capital and contributed equity
Share capital
631,237,586 (2008: 631,237,586) ordinary shares, fully paid and unpaid
Acquisition reserve
Share options
Consolidated
The Company
2009
$’000
685,357
(75,887)
609,470
2008
$’000
684,882
(75,887)
608,995
2009
$’000
685,357
-
685,357
2008
$’000
684,882
-
684,882
On 4 August 2006 the Company issued 6,400,000 options over ordinary shares under an Employee Incentive Plan. These options had a fair value at
grant date of $1.2 million and will be recognised over the vesting period of the options.
Terms and conditions
Ordinary shares
Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders’
meetings.
In the event of winding up of the Company, the ordinary shareholder ranks after all other creditors are fully entitled to any proceeds of liquidation.
9 7
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
27
Share capital and contributed equity Cont.
Reconciliation of movement in capital and reserves attributable to equity holders of the parent
Consolidated
In thousands of AUD
Balance at 1 July 2007
Total recognised income and expense
Dividend paid during the year
Shares issued (net of expenses) (1)
Share based payments
Own shares acquired by employee share plan trust
Balance at 30 June 2008
Consolidated
In thousands of AUD
Balance at 1 July 2008
Total recognised income and expense
Dividend paid during the year
Dividend paid in prior period for MISP holders (2)
Shares issued (net of expenses) (1)
Share based payments
Own shares acquired by employee share plan trust
Balance at 30 June 2009
Issued
capital
609,278
-
-
(283)
-
-
608,995
Issued
capital
608,995
-
199
264
12
-
-
609,470
Share
based
payment
reserve
Hedging
reserve
Foreign
currency
translation
reserve
Reserve
for own
share
Retained
earnings
Total 2008
1,023
-
-
-
451
-
1,474
915
(825)
-
-
-
-
90
(7,935)
(8,836)
-
-
-
-
(16,771)
-
-
-
-
-
(985)
(985)
69,598
67,529
(28,194)
-
-
-
108,933
672,879
57,868
(28,194)
(283)
451
(985)
701,736
Share
based
payment
reserve
Hedging
reserve
Foreign
currency
translation
reserve
Reserve
for own
share
Retained
earnings
Total 2009
(3)
1,474
-
-
-
-
358
-
1,832
90
(10,626)
-
-
-
-
-
(10,536)
(16,771)
9,209
-
-
-
-
-
(7,562)
(985)
-
-
-
-
-
(2,885)
(3,870)
108,933
13,269
(28,406)
(264)
-
-
-
93,532
701,736
11,852
(28,210)
-
12
358
(2,885)
682,863
(1) Costs incurred as a result of the Company’s Initial Public Offering settled during 2008/2009.
(2) Dividend payments for prior periods which were not allocated from retained earnings to payment of shares loans under the Company’s MISP
(refer to note 3(j)(v)(d)).
(3) Dividend payment to MISP holders allocated to the payment of share loans (refer to note 3(j)(v)(d)).
9 8
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
Company
In thousands of AUD
Balance at 1 July 2007
Total recognised income and expense
Dividend paid
Share based payments
Shares issued (net of expenses) (1)
Own shares acquired by employee share plan trust
Balance at 30 June 2008
Company
In thousands of AUD
Balance at 1 July 2008
Total recognised income and expense
Dividend paid
Dividend paid in prior period for MISP holders (2)
Share based payments
Shares issued (net of expenses) (1)
Own shares acquired by employee share plan trust
Balance at 30 June 2009
Issued
capital
685,165
-
-
-
(283)
-
684,882
Issued
capital
684,882
-
199 (3)
264
-
12
-
685,357
Share based
payment
reserve
Reserve of
own shares
Retained
earnings
2008 Total
equity
1,023
-
-
451
-
-
1,474
-
-
-
-
-
(985)
(985)
(3,525)
32,648
(28,194)
-
-
-
929
682,663
32,648
(28,194)
451
(283)
(985)
686,300
Share based
payment
reserve
Reserve of
own shares
Retained
earnings
2009 Total
equity
1,474
-
-
-
358
-
-
1,832
(985)
-
-
-
-
-
(2,885)
(3,870)
929
29,439
(28,406)
(264)
-
-
-
1,698
686,300
29,439
(28,210)
-
358
12
(2,885)
685,014
(1) Costs incurred as a result of the Company’s Initial Public Offering settled during 2008/2009.
(2) Dividend payments for prior periods which were not allocated from retained earnings to payment of shares loans under the Company’s MISP
(refer to note 3(j)(v)(d)).
(3) Dividend payment to MISP holders allocated to the payment of share loans (refer to note 3(j)(v)(d)).
Reserve of own shares
The reserve of own shares comprises of shares purchased on market to satisfy the vesting of shares and rights under the LTIP. Shares that are
forfeited under the Company’s MISP due to employees not meeting the service vesting requirement are transferred to the reserve.
Translation reserve
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations.
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in fair value of cash flow hedging instruments related to hedged
transactions that have not yet occurred.
Share based payment reserve
The share based payment reserve comprises the expenses incurred from the issue of the Company’s securities under its employee share/option
plans (refer to note 3(j)(v)).
9 9
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
28
Commitments
(a)
Operating Lease Commitments
Future non-cancellable operating leases
not provided for in the financial statements
and payable:
Within one year
One year or later but not later than five years
Later than five years
Consolidated
2009
$’000
2008
$’000
The Company
2009
$’000
2008
$’000
6,086
11,763
4,963
22,812
6,208
11,736
924
18,868
-
-
-
-
-
-
-
-
The Group leases the majority of their operating premises. The terms of the tenure are negotiated in conjunction with the Group’s in-house and
external advisors and is dependent upon market forces.
During the financial year the Group recognised an expense in the income statement in respect to operating leases of $9,359,000 (2008: $11,642,000).
(b)
Capital Commitments
The Group has entered into commitments with certain suppliers for purchases of fixed assets, primarily rental fleet assets, in the amount of
$10,071,000 (2008: $49,108,000) payable within one year.
29
Contingent Liabilities
Details of contingent liabilities where the probability of future payments/receipts is not considered remote as set out below, as well as details of
contingent liabilities, which although considered remote, the directors consider should be disclosed.
Guarantees
The Group has guaranteed the repayments of $342,500 (2008: $381,250) with varying expiry dates out to 30 June 2013.
30
Notes to the statements of cash flows
(i)
Reconciliation of Cash
For the purposes of the statements of cash flow, cash includes cash on hand and at bank and short term deposits at call, net of outstanding bank
overdrafts. Cash as at the end of the financial year as shown in the statements of cash flows is reconciled to the related items in the statements of
financial position as follows:
Consolidated
The Company
Note
2009
$’000
2008
$’000
2009
$’000
2008
$’000
15
10,422
16,804
128
4
Cash assets
1 0 0
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
(ii)
Reconciliation of net profit to net cash provided by operating activities
Net profit
13,269
67,529
29,439
32,648
Consolidated
The Company
Note
2009
$’000
2008
$’000
2009
$’000
2008
$’000
Add/(less) items classified as investing/financing activities:
Net profit on sale of non-current assets
(3,858)
(9,476)
Add/(less) non-cash items:
Amortisation
Depreciation
Amortisation of borrowing costs
Loss on ineffective hedge
Unrealised foreign exchange (gain)/loss
Impairment losses on property, plant & equipment
Impairment losses on inventory
Impairment of goodwill
Cost of sales equipment on rent
Derecognition of previously recognised deferred tax asset
338
1,117
104,618
93,113
1,614
1,231
754
6,502
12,966
12,567
295
-
502
-
-
-
6,968
8,294
(6,977)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Equity settled share based payments
353
451
265
335
(Decrease)/increase in income taxes payable
(9,593)
13,571
(10,476)
6,871
(Decrease)/increase in deferred taxes
2,881
(1,105)
-
-
Net cash provided by operating activities before change in assets
liabilities adjusted for assets and liabilities acquired
143,633
174,291
19,228
39,854
(Increase)/decrease in trade and other receivables
31,074
(14,591)
(24,643)
(5,166)
(Increase)/decrease in inventories
Increase/(decrease) in payables
Increase/(decrease) in provisions
16,087
(2,197)
-
-
(17,897)
(4,943)
2,335
(14,086)
2,538
1,031
-
-
Net cash provided by operating activities
175,435
153,591
(3,080)
20,602
(iii)
Non-cash investing and financing activities
During the year there were $1.8 million in acquisitions of plant and equipment by means of finance lease (2008: $17.2 million). Finance lease
acquisitions are not reflected in the cash flow statements.
1 0 1
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
31
Controlled entities
(a)
Particulars in relation to controlled entities
Parent entity
Emeco Holdings Limited
Controlled entities
Emeco Pty Limited
Emeco International Pty Limited
Emeco Sales Pty Ltd
Emeco Parts Pty Ltd
Emeco (UK) Limited
Emeco Equipment (USA) LLC
Wildcat Tractor Company LLC
PT Prima Traktor IndoNusa (PTI)
Emeco International Europe BV
Emeco Europe BV
Euro Machinery BV
Emeco Canada Ltd
Note
Country
of Incorporation
Ownership Interest
2008 %
2009 %
Australia
Australia
Australia
Australia
United Kingdom
United States
United States
Indonesia
Netherlands
Netherlands
Netherlands
Canada
(i)
(ii)
(iii)
(iv)
(v)
(v)
(vi)
(vii)
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Notes
(i) Emeco (UK) Limited was incorporated in and carries on business in the United Kingdom. Emeco (UK) Limited is the parent entity of Emeco
Equipment (USA) LLC, PT Prima Traktor IndoNusa (“PTI”), Emeco International Europe BV and Emeco Canada Limited.
(ii) Emeco Equipment (USA) LLC was incorporated in and carries on business in the United States.
(iii) Wildcat Tractor Company LLC was acquired by Emeco Equipment (USA) LLC on 4 January 2008 and is incorporated in and carries on business in
the United States.
(iv) PT Prima Traktor IndoNusa was incorporated in and carries on business in Indonesia.
(v) Emeco International Europe BV and Emeco Europe BV were incorporated in and carries on business in the Netherlands. Emeco International
Europe BV is the parent entity of Emeco Europe BV, and Euro Machinery BV.
(vi) Euro Machinery BV was acquired on 4 January 2007 and carries on business in the Netherlands.
(vii) Emeco Canada Ltd was incorporated and carries on business in Canada. On 2 August 2005 Emeco Canada Ltd acquired River Valley Equipment
Company Ltd, which operates within Emeco Canada Ltd.
(b)
Acquisition of entities in the current year
There was no acquisition of entities this financial year.
(c)
Acquisition of entities in the prior year
On 4 January 2008, Emeco Equipment (USA) LLC, a subsidiary of the Company acquired the business of Wildcat Tractor Company Inc, a parts
business based in London, Kentucky USA. The consideration paid was US$4,500,000 (A$5,111,000). Subsequent to acquisition the business changed
its name to Wildcat Tractor Company LLC. From the date of acquisition to 30 June 2008 the subsidiary contributed a net profit after tax of $526,000.
1 0 2
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
Recognised
value
Fair value
adjustment
Carrying
amounts
-
-
1,435
-
-
-
(529)
906
274
669
1,543
919
(2,317)
(83)
(38)
967
In thousands of AUD
Cash and cash equivalents
Property, plant and equipment
Inventories
Trade and other receivables
Interest bearing loans and borrowings
Trade and other creditors
Deferred tax liability
Net identifiable assets and liabilities
Goodwill on acquisition
Total consideration
Consideration paid, satisfied in cash (cash outflow)
Cash (acquired)
Net cash outflow
274
669
2,978
919
(2,317)
(83)
(567)
1,873
3,238
5,111
5,111
(274)
4,837
32
Key management personnel disclosure
The following were key management personnel of the Group at any time during the reporting period and unless otherwise indicated were key
management personnel for the entire period.
Non-Executive Directors
A N Brennan (Chairperson)
P B Johnston
Executives
S G Gobby (Chief Financial Officer)
C A Moseley (President Emeco USA)
J R Cahill (appointed 15 September 2008)
D O Tilbrook (Executive General Manager Western Region Rental)
P J McCullagh (resigned 12 November 2008)
H A Christie-Johnston (General Manager Southern Region Rental &
R P Bishop (appointed 22 June 2009)
G J Minton (resigned 25 June 2009)
Australian Sales)
M A Turner (General Manager Global Asset Group)
M R Kirkpatrick (General Manager Corporate Services appointed
Executives Directors
2 September 2008)
L C Freedman (Managing Director)
G P Graham (Managing Director Europe resigned 31 January 2009)
R L C Adair (Executive Director Corporate Strategy and
I M Testrow (General Manager Northern Region Rental until 31 March 2009,
Business Development)
appointed President Emeco Canada Ltd 1 April 2009)
A G Halls (General Manager Northern Region Rental appointed 1 April 2009)
M J Bourke (President Emeco Canada Ltd resigned 9 April 2009)
1 0 3
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
32
Key management personnel disclosure Cont.
Key management personnel compensation
The key management personnel compensation is as follows:
In AUD
Short-term employee benefits
Other long term benefits
Post-employment benefits
Termination benefits
Equity compensation benefits
Consolidated
The Company
2009
2008
2009
2008
5,560,746
4,884,734
-
-
443,566
375,250
-
(1,601)
-
274,119
6,002,711
5,534,103
-
-
-
-
-
-
-
-
-
-
-
-
Remuneration of key management personnel by the Group
The compensation disclosed above represents an allocation of the key management personnel’s compensation from the Group in relation to their
services rendered to the Company.
Individual Directors and Executives compensation disclosures
Information regarding individual Directors and executives compensation and some equity instruments disclosures as required by Corporations
Regulations 2M.3.03 and 2M.6.04 are provided in the Remuneration Report section of the Directors’ Report on pages 36 to 47.
Apart from the details disclosed in this note, no Director has entered into a material contract with the Company or the Group since the end of the
previous financial year and there were no material contracts involving Directors’ interests existing at year-end.
Equity Instruments
Shares and rights over equity instruments granted as compensation under management incentive share plan
The Company has an ongoing Management Incentive Share Plan in which shares have been granted to certain directors and employees of the
Company. The shares vest over a five year period and are accounted for as an option in accordance with AASB 2 Share Based Payments. The
Company has provided a ten year interest free loan to facilitate the purchase of the Shares under the management incentive share plan.
Shares and rights over equity instruments granted as compensation under long term incentive plan
The Company has an ongoing long term incentive plan in which shares have been granted to certain employees of the Company. The shares vest after
three years depending upon the Company’s total shareholder return ranking against a peer group of 98 Companies. The shares have been accounted
for as an option in accordance with AASB 2 Share Based Payments.
1 0 4
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
The movement during the reporting year in the number of shares issued under the management incentive share plan and the long term incentive plan
in the Company held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows. Directors or
executives with no holdings are not included in the following tables.
2009
Directors & Executives
Alec Brennan
Michael Bourke
Anthony Carr
Hamish Christie-Johnston
Stephen Gobby
David Tilbrook
Michael Turner
Ian Testrow
Greg Graham
Michael Kirkpatrick
Anthony Halls
2008
Directors & Executives
Alec Brennan
Michael Bourke
Anthony Carr
Hamish Christie-Johnston
Stephen Gobby
David Tilbrook
Michael Turner
Ian Testrow
Greg Graham
Held at
1 July 2008
Granted as
compensation (3)
Exercised
Forfeited/
lapsed
Held at
30 June 2009 (1)
Vested
during
the year
Vested at
30 June 2009
500,000
700,000
600,000
500,000
150,000
100,000
100,000
400,000
400,000
200,000
-
-
-
-
495,495
731,982
684,685
585,586
540,541
-
450,450
162,162
-
-
-
-
-
-
-
-
-
-
-
-
(700,000)
(600,000)
-
-
-
-
-
(400,000)
-
-
500,000
-
-
995,495
881,982
784,685
685,586
940,541
-
650,450
162,162
Held at
1 July 2007 (2)
Granted as
compensation (3)
Exercised
Forfeited/
lapsed
Held at
30 June 2008
Vested
during
the year
500,000
600,000
500,000
-
-
-
-
300,000
300,000
-
100,000
100,000
500,000
150,000
100,000
100,000
100,000
100,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
500,000
700,000
600,000
500,000
150,000
100,000
100,000
400,000
400,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
500,000
-
-
-
-
-
-
-
-
-
-
Vested at
30 June 2008
500,000
-
-
-
-
-
-
-
-
No shares held by key management personnel have vested under the Management Incentive Share Plan and are therefore not included in issued
capital.
(1)
Included in this balance of equity instruments Messrs Brennan, Christie-Johnston and Kirkpatrick held MISP shares at 30 June 2009 of 500,000,
500,000 and 150,000 respectively.
(2) All shares held by key management personnel at 1 July 2007 were held under the Company’s MISP.
(3) Equity instruments granted to Hamish Christie-Johnston during 2008 were issued under the Company’s MISP. All other equity instruments
issued to key management personnel during 2008 and 2009 were issued under the Company’s LTIP.
1 0 5
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
32
Key management personnel disclosure Cont.
Options over equity instruments granted as compensation under a share option programme
During the prior year options were issued to Mr L C Freedman and Mr R L C Adair following the successful completion of the Company’s IPO, the
term of which are disclosed in the Remuneration report. The movement during the reporting year in the number of options held, directly, indirectly
or beneficially, by each key management person, including their related parties is as follows:
2009
Directors & Executives
L C Freedman
R L C Adair
2008
Directors & Executives
L C Freedman
R L C Adair
Held at
1 July 2008
Granted as
compensation
Exercised
Options*
Forfeited
Other
Changes
Held at
30 June 2009
Vested
during
the year
Vested and
exercisable at
30 June 2009
4,800,000
1,600,000
-
-
-
-
(1,600,000)
(533,333)
-
-
3,200,000
1,066,667
-
-
1,600,000
533,333
Held at
1 July 2007
Granted as
compensation
Exercised
Options
Forfeited
Other
Changes
Held at
30 June 2008
Vested
during
the year
Vested and
exercisable at
30 June 2008
4,800,000
1,600,000
-
-
-
-
-
-
-
-
4,800,000
1,600,000
-
-
1,600,000
533,333
* On the 26 August 2009 Mr Freedman will forfeit 1,600,000 options and Mr Adair will forfeit 533,333 options. These forfeitures will occur
because, under the terms of the Options Plan, the Company’s earnings per share target for the year ended 30 June 2009 was not achieved. For
further details, see page 38 of this report.
Equity holdings and transactions
The shares in the Company held, directly, indirectly or beneficially, by each key management person, including their personally-related entities at
year end, is as follows. Directors or executives with no holdings are not included in these tables.
2009
Directors
L C Freedman
R L C Adair
G J Minton
P J McCullagh
A N Brennan
P B Johnston
J R Cahill
R P Bishop
Executives
D O Tilbrook
M A Turner
S G Gobby
I M Testrow
H A Christie-Johnston
M R Kirkpatrick
A G Halls
Held at 1 July 2008
Ordinary Shares (1)
Purchases
Sales
Held at 30 June 2009
Ordinary Shares (1)
19,000,000
6,100,000
361,267
216,707
1,381,420
100,000
-
-
3,300,000
5,500,000
50,000
186,368
150,000
73,000
4,000
1,000,000
200,000
-
-
200,280
-
120,000
-
-
-
293,000
-
200,000
20,000
16,773
-
-
-
144,422
-
-
-
-
-
-
-
186,368
50,000
-
5,000
20,000,000
6,300,000
361,267
72,285
1,581,700
100,000
120,000
-
3,300,000
5,500,000
343,000
-
300,000
93,000
15,773
(1) Total does not include shares held under the Company’s share plans.
1 0 6
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
Held at July 2007
Ordinary Shares
Purchases
Sales
Held at 30 June 2008
Ordinary Shares
18,000,000
6,000,000
161,267
184,907
1,031,420
20,000
5,500,000
5,500,000
-
186,368
-
1,000,000
100,000
200,000
31,800
350,000
80,000
-
-
50,000
-
150,000
-
-
-
-
-
-
(2,200,000)
-
-
-
-
19,000,000
6,100,000
361,267
216,707
1,381,420
100,000
3,300,000
5,500,000
50,000
186,368
150,000
2008
Directors
L C Freedman
R L C Adair
G J Minton
P J McCullagh
A N Brennan
P B Johnston
Executives
D O Tilbrook
M A Turner
S G Gobby
I M Testrow
H A Christie-Johnston
Loans
Other than the loan issued under the management incentive share plan no specified director or executive has entered into any loan arrangements
with the Group.
Other key management personnel transactions
A number of key management persons, or their related parties, hold positions in other entities that result in them having control or significant
influence over the financial or operating policies of those entities.
A number of these entities transacted with the Company or its subsidiaries in the reporting period. The terms and conditions of the transactions
with management persons and their related parties were no more favourable than those available, or which might reasonably be expected to be
available, on similar transactions to non-director related entities on an arm’s length basis.
The aggregate amount recognised during the year related to key management personnel and their related parties were as follows:
Key management
person and their
related parties
Mr M A Turner
Mr D O Tilbrook
- Ivy Street Unit Trust
Transaction
Rental of 510 Great
Eastern Highway
Transaction value year ended
30 June
Balance outstanding as at
30 June
Note
2009
$’000
2008
$’000
2009
$’000
2008
$’000
(1)
245
245
-
-
(1) The Group rents its premises at 510 Great Eastern Highway, Redcliffe in Western Australia from Demol Investments Pty Ltd as trustee of the
Ivy Street Unit Trust (“Trust”) for an annual consideration of $243,419. The price was negotiated on an arms length basis. Two of the Group’s key
management personnel, Mr David Tilbrook and Mr Michael Turner, hold units in the Trust and each of them has a significant influence over the
Trust.
1 0 7
E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
33
Non key management personnel disclosures
The classes of non key management personnel are:
•
subsidiaries (Note 31)
Transactions
The aggregate amounts included in the profit before income tax
expense that resulted from transactions with non director related
parties are:
Dividends
Aggregate amount of other transactions with non director related
parties:
Loan advances to:
Subsidiaries
Consolidated
The Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
-
-
-
-
30,700
33,600
472,755
511,706
Subsidiaries
Loans are made between wholly owned subsidiaries of the Group for capital purchases. Loans outstanding between the different wholly owned
entities of the Company have no fixed date of repayment. Loans made between subsidiaries within a common taxable jurisdiction are interest free.
Cross border subsidiary loans are charged at LIBOR plus a relevant arms length mark up.
Ultimate parent entity
Emeco Holdings Limited is the ultimate parent entity of the Group.
34
Subsequent events
Subsequent to 30 June 2009 the Company declared a 2.0 cent fully franked dividend payable 30 September 2009.
35
Earnings per share
Basic earnings per share
The calculation of basic earnings per share at 30 June 2009 was based on the profit attributable to ordinary shareholders of $13,269,000 (2008:
$67,529,000) and a weighted average number of ordinary shares outstanding for the year ended 30 June 2009 of 631,237,586 (2008: 631,237,586).
Weighted average number of ordinary shares
In thousands of shares
Issued ordinary shares at 1 July
Effect of shares issued during the year
Effect of conversion of performance shares
Effect of 2:1 share split
Weighted average number of ordinary shares at 30 June
Diluted earnings per share
Consolidated
2009
Consolidated
2008
631,238
-
-
-
631,238
631,238
-
-
-
631,238
The calculation of diluted earnings per share at 30 June 2009 was based on profit attributable to ordinary shareholders of $13,269,000 (2008:
$67,529,000) and a weighted average number of ordinary shares outstanding during the financial year ended 30 June 2009 of 631,238,000 (2008:
631,238,000). Options are considered potential ordinary shares and have been included in the dilutive earnings per share.
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N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
Weighted average number of ordinary shares (diluted)
In thousands of shares
Weighted average number of ordinary shares at 30 June
Effect of conversion of options
Weighted average number of ordinary shares (diluted)
at 30 June
Consolidated
2009
Consolidated
2008
631,238
-
631,238
-
631,238
631,238
Earnings per share
Basic earnings per share
In AUD
Diluted earnings per share
In AUD
Comparative information
0.021
0.107
0.021
0.107
The average market value of the Company’s shares for the purpose of calculating the dilutive effect of share options was based on quoted market
prices for the period that options were outstanding.
36
Deed of cross guarantee
Pursuant to ASIC Class Order 98/1418 (as amended) dated 13 August 1998, the wholly-owned subsidiaries listed below are relieved from the
Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports, and Directors’ Report.
It is a condition of the Class Order that the Company and each of the subsidiaries enter into a Deed of Cross Guarantee. The effect of the Deed is that
the Company guarantees to each creditor payment in full of any debt in the event of winding up of any of the subsidiaries under certain provisions of
the Corporations Act 2001. If a winding up occurs under other provisions of the Act, the Company will only be liable in the event that after six months
any creditor has not been paid in full. The subsidiaries have also given similar guarantees in the event that the Company is wound up.
The subsidiaries subject to the Deed entered into during the year are:
•
•
Emeco Pty Ltd
Emeco International Pty Limited
A consolidated income statement and consolidated balance sheet, comprising the Company and controlled entities which are a party to the Deed,
after eliminating all transactions between parties to the Deed of Cross Guarantee, at 30 June 2009 is set out as follows:
Summarised income statement and retained profits
Profit before tax
Income tax expense
Profit after tax
Retained profits at beginning of year
Dividends paid during the year
Retained profits at end of year
Attributable to:
Equity holders of the Company
Profit for the period
Consolidated
2009
$’000
Consolidated
2008
$’000
70,765
(21,027)
49,738
94,299
(30,700)
113,337
113,337
49,738
87,566
(26,360)
61,206
66,693
(33,600)
94,299
94,299
61,206
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E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
36
Deed of cross guarantee Cont.
Balance Sheet
Consolidated
2009
$’000
Consolidated
2008
$’000
4,909
48,283
97,650
150,842
37,631
188,714
403,575
629,920
12,067
77,401
134,543
224,011
60,405
188,965
398,394
647,764
780,762
871,775
49,566
2,264
4,427
56,257
139,735
472,754
8,453
761
621,703
70,982
2,001
4,038
77,021
169,649
514,717
15,339
660
700,365
677,960
777,386
102,802
94,389
-
(10,535)
113,337
102,802
-
90
94,299
94,389
Current Assets
Cash assets
Trade and other receivables
Inventories
Total current assets
Non-current assets
Trade and other receivables
Intangible assets
Property, plant and equipment
Total non-current assets
Total assets
Current Liabilities
Trade and other payables
Interest bearing liabilities
Provisions
Total current liabilities
Non-current Liabilities
Interest bearing liabilities
Non interest bearing liabilities
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity attributable to equity
holders of the parent
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E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
Directors’ Declaration
1.
In the opinion of the Directors of Emeco Holdings Limited (“the Company”):
(a) the financial statements and notes as set out on pages 50 to 110, and Remuneration report in the Directors’ report, set out on pages 36 to 47
are in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the Company’s and the Group’s financial position as at 30 June 2009 and of their performance, as
represented by the results of their operations and their cash flows, for the financial year ended on that date; and
(ii) complying with Accounting Standards and the Corporations Regulations 2001;
(b) the financial report also complies with International Financial Reporting Standards as disclosed in note 2(a);
(c) there are reasonable grounds to believe that the Company is able to pay its debts as and when they become due and payable.
2. There are reasonable grounds to believe that the Company and the group of entities identified in Note 36 will be able to meet any obligation or
liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee between the Company and those group entities
pursuant to ASIC Class Order 98/1418.
3. The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Chief Executive Officer and Chief
Financial Officer for the financial year ended 30 June 2009.
Dated at Perth, 25th day of August 2009.
Signed in accordance with a resolution of the Directors:
Laurence Freedman
Managing Director
Robin Adair
Director
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Independent Auditor’s Report
Independent auditor’s report to the members of Emeco Holdings Limited
Report on the financial report
We have audited the accompanying financial report of Emeco Holdings Limited (the Company), which comprises the balance sheets as at 30 June
2009, and the income statements, statements of recognised income and expense and cash flow statements for the year ended on that date, a
description of significant accounting policies and other explanatory notes and the Directors’ declaration of the Group comprising the Company and
the entities it controlled at the year’s end or from time to time during the financial year.
Directors’ responsibility for the financial report
The Directors of the Company are responsible for the preparation and fair presentation of the financial report in accordance with Australian
Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing
and maintaining internal control relevant to the preparation and fair presentation of the financial report that is free from material misstatement,
whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in
the circumstances. In note 2(a), the Directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial
Statements, that the financial report, comprising the financial statements and notes, complies with International Financial Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing
Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and
perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures
selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to
fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of
the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial report.
We performed the procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations
Act 2001 and Australian Accounting Standards (including the Australian Accounting Interpretations), a view which is consistent with our
understanding of the Company’s and the Group’s financial position and of their performance.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
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E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
Auditor’s opinion
In our opinion:
(a) the financial report of Emeco Holdings Limited is in accordance with the Corporations Act 2001, including:
(i)
giving a true and fair view of the Company’s and the Group’s financial position as at 30 June 2009 and of their performance for the year
ended on that date; and
(ii)
complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001.
(b) the financial report also complies with International Financial Reporting Standards as disclosed in note (2a).
Report on the remuneration report
We have audited the Remuneration Report included in pages 36 to 47 of the Directors’ Report for the year ended 30 June 2009. The Directors of the
Company are responsible for the preparation and presentation of the remuneration report in accordance with Section 300A of the Corporations Act
2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with auditing standards.
Auditor’s opinion
In our opinion, the remuneration report of Emeco Holdings Limited for the year ended 30 June 2009, complies with Section 300A of the Corporations
Act 2001.
KPMG
KPMG
R Gambitta
Partner
Perth
25 August 2009
KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,
a Swiss cooperative.
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E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
Shareholder Information
ANNUAL GENERAL MEETING
The annual general meeting of the Company will be held at the Sydney Hilton Hotel, 488 George Street, Sydney, at 12 noon on Wednesday, 18 November
2009. Shareholders who are unable to attend the meeting are encouraged to complete and return the proxy form that will accompany the Notice of
Meeting.
SUBSTANTIAL SHAREHOLDERS
Details regarding substantial holders of the Company’s ordinary shares as at 31 August 2009, as disclosed in the substantial holding notices, are as
follows:
Name
Franklin Resources Inc and its affiliates
Maple-Brown Abbott Limited
Barclays Group
DISTRIBUTION OF SHAREHOLDERS
Shares
71,479,322
59,032,971
46,228,582
%
11.32
9.35
7.33
As at 31 August 2009, there were 7,681 holders of the Company’s ordinary shares. The distribution of shareholders as at 31 August 2009 was as
follows:
Size of holding
1-1,000
1,001- 5,000
5,001-10,000
10,001-100,000
100,001 and over
Total
No. of holders
Number of shares
811
2,574
1,768
2,312
216
7,681
530,315
7,662,264
13,441,548
61,323,857
548,279,602
631,237,586
As at 31 August 2009, the number of shareholders holding less than a marketable parcel of shares is 646.
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E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
20 LARGEST SHAREHOLDERS
The names of the 20 largest holders of the Company’s ordinary shares as at 31 August 2009 are:
Name
J P Morgan Nominees Australia Limited
HSBC Custody Nominees (Australia) Limited
RBC Dexia Investor Services Australia Nominees Pty Limited
National Nominees Limited
UBS Wealth Management Australia Nominees Pty LTD
ANZ Nominees Limited
Citicorp Nominees Pty Limited
Archer Capital 3A Pty Limited
Archer Capital 3B Pty Limited
AMP Life Limited
Pacific Custodians Pty Limited
Elphinstone Holdings Pty Limited
UBS Nominees Pty Limited
Mr Michael Anthony Turner
Goldking Enterprises Pty Limited
Merlin Investments BVBA
Queensland Investment Corporation
Cogent Nominees Pty Limited
Linda Dorothy Sauvarin
G Harvey Nominees Pty Limited
Shares
125,136,830
58,630,566
55,120,011
53,955,900
27,052,283
25,403,723
20,821,228
13,154,000
13,154,000
11,811,558
9,010,000
6,860,000
5,737,065
5,500,000
4,995,000
4,942,000
4,841,402
4,281,839
4,145,998
3,661,800
%
19.82
9.29
8.73
8.55
4.29
4.02
3.30
2.08
2.08
1.87
1.43
1.09
0.91
0.87
0.79
0.78
0.77
0.68
0.66
0.58
VOTING RIGHTS OF ORDINARY SHARES
Voting rights of shareholders are governed by the Company’s constitution. The Constitution provides that on a show of hands every member present
in person or by proxy has one vote and on a poll every member present in person or by proxy has one vote for each fully paid ordinary share held by
the member.
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E M E C O H O L D I N G S L I M I T E D A N D I T S C O N T R O L L E D E N T I T I E S
Company Directory
Directors
Robin Adair
Robert Bishop
Alec Brennan
John Cahill
Laurie Freedman
Peter Johnston
Secretary
Michael Kirkpatrick
Registered Office
Ground Floor, 10 Ord Street
West Perth WA 6005
Telephone:
Facsimile:
(08) 9420 0222
(08) 9321 1366
Share registry
Link Market Services Limited
Level 12, 680 George Street
Sydney NSW 2000
Telephone:
1300 554 474
www.linkmarketservices.com.au
Auditors
KPMG
235 St George’s Terrace
Perth WA 6000
Stock Exchange Listing
Emeco Holdings Ltd ordinary shares are listed on the Australian Stock Exchange Ltd.
ASX code: EHL
Photography by James Sallie
Design and artwork by Image 7 Group
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D I R E C T O R S ’ R E P O R T F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 9
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www.emecogroup.com